The UK Government has launched a formal consultation on tackling late, long, and disputed business-to-business payments, including the use of retention clauses in construction contracts. If you run a Scottish SME and have ever watched a large client sit on your invoice for 90 days while you quietly covered payroll from your overdraft, this consultation is specifically about your life.
According to the Federation of Small Businesses, late payment forces 50,000 UK businesses to close every year. That is not a rounding error. It is a structural failure baked into commercial culture, where large buyers use small suppliers as an interest-free credit facility. The Scottish Government's own Scotland's Economic Strategy identifies cash-flow instability as one of the primary barriers to SME growth north of the border, and the picture in construction, healthcare supply chains, and professional services is particularly sharp.
The consultation is seeking views on several potential legislative measures: mandatory payment terms, stronger enforcement of the Prompt Payment Code, new rules around contractual retention in construction, and whether the Small Business Commissioner should be given sharper teeth to act against serial offenders. Currently, the Commissioner can investigate and name poor payers, but has no power to impose fines. That may be about to change.
The timing matters. Research published by Xero's Small Business Insights platform found that Scottish small businesses wait an average of 23 days beyond agreed terms to receive payment, with sole traders and microbusinesses bearing the worst of it. Those delays compound across a year into genuine cash-flow crises that no amount of good trading can paper over. Legislation that enforces 30-day payment terms, or imposes automatic penalties for late payment, would materially change the operating environment for thousands of Edinburgh and Scottish businesses.
The construction sector has its own specific problem flagged in the consultation: retention clauses, where main contractors hold back a percentage of subcontractor payments for months or years as a performance guarantee. The Specialist Engineering Contractors' Group has long argued this practice is routinely abused, locking up cash that smaller firms need to function. The consultation asks whether statutory controls on retentions are now necessary.
Scotland does have devolved levers here, procurement policy, public sector payment practices, and Business Gateway support are all areas where Holyrood can and does act independently. The Scottish Government already requires public bodies to pay invoices within 10 days. But the bulk of commercial contract law remains reserved to Westminster, which is precisely why this consultation matters and why Scottish voices in it are not optional extras.
The consultation closes on 28 May 2025. Responses can be submitted directly through the UK Government's website. The Scottish Chambers of Commerce and Business Gateway are both worth contacting if you want support framing a response, individual submissions from named businesses carry weight, and a Scottish SME owner describing a specific £40,000 retention dispute lands harder in a policy document than a trade body's aggregate statistics.