Fixing the scourge of late payments on SMEs

Research figures used by the UK Government show that small businesses are owed £26 billion in late payments. With 16% of all SMEs in the UK operating in the construction sector, these unpaid bills have a major impact on the sector, including both the financial viability of these companies and the mental health of those who operate them.

CIOB’s Understanding Mental Health in the Built Environment 2025 research, published in May 2025, found that current payment practices create unnecessary strain and stress for these companies as many see delays in being paid within a suitable timeframe. 

The latest Building Engineering Business Survey (BEBS) revealed 76% of private sector clients and 49% of public sector clients paid their contractors later than 30 days after work was completed, with 40% of their respondents reporting that 2.5-10% of their turnover was tied up in retentions. As a result of late payments, business owners are put under pressure, with many often having to decide between either not paying themselves or making redundancies.

Tackling late payment 

In an effort to tackle this issue, the UK Government established the Office of the Small Business Commissioner (OSBC) under the Enterprise Act 2016 to tackle late payments and unfair payment practices. 

Supporting small businesses to get paid quickly and on time, and working with all business to improve the culture of payment practices across the whole of the UK, the Commissioner has so far secured payment of more than £8 million in delayed and unpaid invoices. 

This work has included working with construction businesses to navigate the challenges in the sector, primarily by supporting firms of all sizes to improve their payment practices.

As part of its work, the OSBC recently launched a new Fair Payment Code (FPC), a Government-backed series of Awards designed to drive best practice and improve payment performance in the private sector. Businesses can apply for a Gold, Silver or Bronze Award, all of which are underpinned by fair payment principles: to be Clear, Fair and Collaborative with suppliers.

The new code replaced the previous Prompt Payment Code (PPC), introducing a requirement for awardees to provide proof of their payment practices. 

Impact of the Fair Payment Code

The OSBC says that feedback from awardees of the code has shown that quicker payment and fairer terms could help with the other challenges that small businesses are facing by improving cashflow and stability. Introduction of the Code is also helping to build trust between customers and suppliers, strengthening supply chains.

Businesses and organisations of any size with a UK registered office are able to apply, as long as they can provide evidence that they are meeting the Code’s requirements and complying with its principles. More information on the application can be found here. 

CIOB is hosting a webinar on June 19 with the UK Small Business Commissioner, Liz Barclay, and OSBC Policy & Implementation Lead, Jacqueline Moore, to give an overview of the Code, outline the application process and the support available to firms going through that process, and talk about the potential benefits for businesses in the construction sector that join the Code.

Register for the webinar here.