On 24 March 2026, the UK Government published its official response to the 2025 late payments consultation. It promises the most significant overhaul of late‑payment law in over 25 years, with a particular focus on protecting smaller suppliers and strengthening enforcement.

According to the Government response, late payments are estimated to cost the UK economy almost £11 billion a year, contribute to the closure of around 38 businesses a day, and tie up about £26 billion in overdue invoices at any one time.

The Government now intends to legislate for a package of measures, including a 60‑day hard cap on payment terms (subject to some exemptions), mandatory statutory interest, and stronger powers for the Small Business Commissioner (SBC).

The measures envisaged measures will require enablement through a combination of an Act of Parliament and secondary legislation. The Government states that it “will legislate as soon as Parliamentary time allows” and so a timetable as to its progress and introduction is not known at the time of writing.

1. The headline change - a 60‑day maximum payment term

What is actually being proposed?

The Government intends to introduce a maximum payment term of 60 days between businesses, subject to limited exemptions (covered below).

In practice, that means that once the law is in force:

• Businesses will not be able to contract for payment terms longer than 60 days, except where one of the specified exemptions applies.
• The policy is expressly aimed at ensuring smaller businesses are paid in a maximum of 60 days.

This is a shift from the current position under the Late Payment of Commercial Debts (Interest) Act 1998, where terms longer than 60 days can be agreed if they are not “grossly unfair”.

What are the exemptions?

The Government response states that the 60 day cap will have three narrow exemptions. The cap will not apply where the contract is one:

1. Between two large companies;
2. Where the purchaser is the smaller party; or
3. Where the goods or services are being imported or exported.

The previously floated idea of reducing the 60 day limit to 45 days after a few years seems to have been dropped for now. The Government’s original proposal had included the potential for a further reduction to 45 days after 5 years (itself subject to further consultation) but this has not been included in the “next steps” elements of this section. This does not, however, mean that it won’t be revisited as a measure in the future.

Why is this happening?

Consultation responses showed that long contractual payment terms are often imposed by stronger customers on weaker suppliers, especially SMEs. The Government’s stated aim is to stop genuinely long terms being used as a form of, in effect, free finance at the expense of smaller suppliers, and to give those suppliers more predictable cash flow.

What will this mean for your contracts?

If the reforms are implemented as proposed:

• Standard payment terms of 90 or 120 days in B2B contracts will no longer be lawful (unless one of the three exemptions applies).
• Businesses will need to update their standard terms, purchase order templates and procurement playbooks to reflect a maximum 60 day term.
• The Government’s intention is effectively to create a “hard limit”, not just a soft guideline.

The Government response does not yet spell out all the technical detail. However, given the reference to this being a “hard limit”, this suggests that any contractual term which attempts to go beyond 60 days in a non‑exempt case would be overridden by statute.

In many sectors, the 60 day maximum is likely to become the default payment term, unless suppliers are able to negotiate shorter terms (e.g. 30 days).

2. Other key measures in the package

Mandatory statutory interest of 8% above Bank of England base rate

The Government intends to make it a legal requirement that all commercial contracts contain a right to statutory interest at 8% above the Bank of England base rate, and to remove the ability for parties to agree any “alternative remedy” for late payment. In other words:

• You won’t be able to contract out of 8% above the base rate; and
• You won’t be able to replace it with another, “milder” remedy (such as 2 to 4% above base).

This is a move away from the current practice where some larger customers might insist on very low contractual interest rates.

Statutory deadline for disputing invoices

There will be a statutory time limit for raising invoice disputes. If a customer does not dispute within that window, it will:

• Lose the benefit of that dispute window; and
• Be required to pay compensation to the supplier for failing to raise the dispute in time. No further detail on this is available in the Consultation Response.

The exact length of that time limit is not yet fixed. Construction contracts will have a separate measure to dovetail with the existing construction payment regime.

Additional reporting on statutory interest

Large companies will have to report:

• The amount of statutory interest they ought to have paid under the law; and
• The amount of interest they actually paid.

The idea is that persistent underpayment or non‑payment of interest becomes visible, and can trigger investigation and fines via the SBC.

For the purposes of these reforms, a “large company” means a business that falls within the existing large company reporting regime. Typically, this is one that exceeds at least two of the following thresholds: £36 million turnover, £18 million balance‑sheet total, or 250 employees.

Board‑level scrutiny for poor payers

Large UK businesses whose payment performance is poor in a reporting period will be legally required to publish commentary on GOV.UK covering:

• Why their payment performance is poor;
• What actions they are taking to improve; and
• Which actions from earlier plans have not been implemented, and why.

This is meant to push payment behaviour onto the board agenda and into the publicly available space via published commentary, not just leave it to finance teams.

Financial penalties and stronger SBC powers

The SBC will be given powers to:

• Investigate suspected poor payment practices, including using anonymous evidence;
• Compel information, and verify data reported under the existing payment‑practices reporting regulations;
• Provide adjudication of disputes between small suppliers and larger customers, outside court; and
• Impose financial penalties, including “significant potential fines” for large companies that persistently pay late or breach the rules.

Construction sector - banning retention payments

The Government proposes to ban the practice of deducting and withholding retention payments under construction contracts, subject to consultation on how this is implemented.

This will be a major change for construction, where retentions have long been used as a form of security.

3. Territorial and implementation scope

The Government intends to introduce these measures across the UK, while recognising that late payments is a devolved matter in Scotland, Wales and (transferred) Northern Ireland. It will be working with the devolved governments under the Late Payment Common Framework to secure regulatory alignment.

The role of governing law in cross‑border contracts remains unclear and will only become clear once the draft Bill is published. There is no guidance in the Consultation Response as to foreign‑party contracts, governing law choices, or extraterritorial scope and therefore the detail of the Bill, once published, will be important.

4. Practical steps for business owners

Regardless of the finer legal points, the direction of travel is clear. Businesses, particularly larger ones, should start to:

1. Audit standard payment terms

• Identify all contracts where payment terms exceed 60 days.
• Flag which of those are domestic and which are import/export, given the exemption referred to above.

2. Prepare to move to 60‑day or shorter terms

• For UK‑domestic B2B relationships, assume that payment terms above 60 days will not be allowed once the law is in force.
• Consider whether you can move to 30 day terms where this is commercially realistic.

3. Tighten invoice‑dispute processes

• Put in place internal procedures to ensure that any dispute is raised quickly once an invoice is received, to avoid compensation liabilities under the forthcoming statutory deadline.

4. Plan for statutory interest and reporting

• Model the financial impact of mandatory 8% + base interest on late payments.
  Large companies should think about how they will track and report statutory interest liabilities versus amounts actually paid.

5. For international contracts

• Where there may be an importing/exporting element to a contract, note the import/export exemption and think about whether a particular contract is likely to fall within it.
   

Disclaimer: Nothing in this piece is legal advice and is merely intended to be general interest commentary on proposed legislation which has not yet reached a draft Bill status. The issues covered are non-exhaustive. As all circumstances are different, you should take specific legal and accountancy advice before acting in reliance on any of the information provided.