The UK Government has confirmed plans to tighten late payment laws following its “Time to pay up” consultation, with reforms aimed squarely at improving cash flow across supply chains.
Late payment remains a major issue for small and medium sized businesses, with government estimates putting the cost to the UK economy at £11 billion a year. For business owners, late payments affect cash flow, payroll, supplier relationships and growth.
The proposed changes would introduce a more rigid legal framework around payment terms, interest and enforcement. While not yet in force, it is clear that businesses that rely on long payment cycles or informal processes will need to adapt.
Changes to late payment rules
The reforms focus on three core areas that will affect how businesses invoice, get paid and manage disputes.
First, a 60 day maximum payment term is expected to apply to most business to business transactions. This would replace the current position where longer terms can be agreed if they are not considered unfair. If you currently offer or accept 90 or 120 day terms, those arrangements are unlikely to remain compliant.
Second, late payment interest will become automatic. Businesses already have the right to charge interest at 8 percent above the Bank of England base rate under the Late Payment of Commercial Debts (Interest) Act 1998, but many contracts override this. That flexibility is expected to be removed, meaning interest will apply by default where payment is late.
Third, a fixed deadline for raising invoice disputes is expected to be introduced. If a customer does not raise an issue within that window, the invoice will stand and payment will be due, with financial consequences if it is not paid.
Alongside these changes, large companies will face stricter reporting requirements and may need to disclose how much statutory interest they owe versus what they actually pay.
Stronger legal enforcement
One of the most important shifts is enforcement. The Small Business Commissioner is expected to gain significantly stronger powers, including the ability to investigate payment practices, demand information and issue fines against persistent late payers.
This moves the system away from relying on suppliers to chase payment and enforce rights themselves. Instead, there will be a regulator with the authority to intervene where payment practices fall below acceptable standards.
For businesses that routinely delay payments or rely on informal extensions, this creates a direct compliance risk, not just a commercial one.
Timeline for implementation
These reforms are not yet law.
The Government has confirmed that legislation will be introduced “when Parliamentary time allows”, which means there is no fixed implementation date at this stage.
In practical terms, the timeline is likely to look like this:
- A draft Bill is introduced to Parliament
- Parliamentary scrutiny in the Commons and Lords, typically several months
- Further regulations and guidance to support enforcement and reporting
On a realistic view, the changes are unlikely to take effect before 2027, even if a Bill is introduced later in 2026. That gives businesses a window to prepare, but not an indefinite one.
Impact on businesses
The proposed reforms are designed to improve payment reliability across the market, but they will also change how businesses manage relationships and cash flow.
For smaller businesses, the changes are likely to improve certainty. Shorter payment terms and automatic interest reduce the need to negotiate or chase aggressively.
For larger businesses, the focus shifts to compliance and reputation. Payment practices will become more visible and more closely linked to regulatory risk.
In the short term, the key issue is preparation. Businesses that rely on extended payment cycles, informal dispute handling or inconsistent processes are likely to face disruption once the rules take effect.
The legal framework is moving toward clearer deadlines, fewer workarounds and stronger enforcement. Aligning your processes now will put you in a far better position when the changes come into force.
How businesses should prepare
Waiting for the law to change is not a strong strategy here. Many of the underlying rights already exist, and the direction of reform is unlikely to reverse.
There are several practical steps business owners can take now.
Review your standard payment terms. If you currently allow more than 60 days, consider reducing this and aligning with where the law is heading.
Update your contracts. Include clear wording on late payment interest and specify how and when disputes need to be raised.
Tighten your invoicing process. Make sure invoices are issued promptly, clearly dated and easy to track. Delays often start with inconsistent billing.
Put a chasing process in place. This should not rely on ad hoc emails. Set defined timelines for reminders, escalation and next steps.
Check your larger customers. Companies already report payment performance under existing regulations. Reviewing their track record can help you assess risk before entering into contracts.
Consider escalation options. The Small Business Commissioner is expected to have stronger enforcement powers, making formal complaints a more practical route than in the past.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
