IN Brief:
- The Small Business Protections Bill would introduce a 60-day cap on payment terms for large businesses paying smaller suppliers.
- The legislation includes mandatory late-payment interest and stronger powers for the Small Business Commissioner.
- Construction is specifically targeted through proposed action to ban the withholding of retention payments.
The UK government has introduced legislation to tighten payment practice across business supply chains, with construction specifically targeted through proposed action to ban cash retentions.
The Small Business Protections Bill would place a 60-day cap on payment terms for large companies paying smaller suppliers. It would also make interest on late payments mandatory, set at 8% above the Bank of England base rate, and give the Small Business Commissioner stronger powers to investigate poor payment practice, adjudicate disputes, and fine persistent late payers.
Within construction, the proposed ban on retention payments is the most direct intervention. Retentions are commonly used to hold back a percentage of payment until completion or the end of a defects period, but the practice has long been criticised for trapping cash deep inside the supply chain.
Smaller subcontractors and specialist suppliers are often most exposed. Labour, materials, preliminaries, and overhead costs can all be carried before full payment is received, while disputes over defects, variations, and final accounts can extend recovery well beyond the original payment cycle.
The bill is designed to give smaller businesses greater certainty over cashflow and reduce the time spent chasing overdue invoices. In construction, where project payment chains are often long and commercially strained, the proposed reforms would cut into a structural weakness rather than a simple administrative failure.
Supplier exposure has been visible across recent insolvency cases. The administration of Jerram Falkus, which left more than £8m owed to suppliers, showed how quickly unpaid invoices can move from routine commercial risk into direct pressure on smaller businesses. That case also reflected a broader problem: subcontractors often stand furthest from the client but closest to the cash shock when a project or contractor fails.
A 60-day statutory cap would not remove disputes from construction contracts. Valuation disagreements, defects claims, design changes, and final-account negotiations will continue to shape cash recovery. The cap would, however, narrow the ability of large businesses to stretch payment periods as a normal working-capital tool.
The retention ban is likely to attract close scrutiny as the bill progresses. Clients and main contractors have historically presented retentions as protection against poor workmanship and unresolved defects. Specialist contractors have argued that retentions are often withheld too long, lost through insolvency, or used as leverage during commercial disputes.
If the ban proceeds, the industry will need alternative approaches to performance security. Project bank accounts, bonds, escrow arrangements, insurance-backed products, and stronger contract administration could all receive greater attention. Any replacement mechanism will need to protect quality without recreating the same cashflow problem under a different name.
The proposed legislation also arrives as construction faces persistent delivery pressure. Labour shortages, materials volatility, and fragile margins have made cash discipline more important, particularly for small and micro businesses operating on limited reserves.
Payment reform has circulated through construction policy debate for years. The introduction of a bill gives the issue a formal legislative route, and the inclusion of retentions places one of the sector’s most contested commercial practices directly in scope.
