Late payment rules: get ready for the new 60-day payment cap

The government is still planning tougher late payment rules for UK businesses, but the shape of those reforms has changed.

It is no longer moving ahead with a 45-day maximum payment term at this stage. Instead, the latest package focuses on a 60-day maximum payment term, mandatory statutory interest, stronger powers for the Small Business Commissioner and greater pressure on large businesses that pay suppliers late.

These changes are not law yet. The government says the measures will require primary and secondary legislation, and that it will legislate as soon as Parliamentary time allows. The Small Business Commissioner has also welcomed confirmation in the King’s Speech that a Bill to tackle late and unfair payments will be introduced.

For SMEs, this is encouraging. However, better late payment rules will not automatically put cash in the bank. The businesses that benefit most will still be the ones with clear payment terms, clean paperwork and disciplined credit control.

Here is what is changing, what is not changing yet, and what SMEs should do now.

Why late payment rules are changing

Late payment has often been treated as an unavoidable part of doing business. For many SMEs, though, it can be a serious cashflow problem.

The government’s consultation response says late payments are estimated to cost the UK economy almost £11 billion a year. It also says 14,000 businesses close each year due to late payments, or 38 businesses per day.

The aim of the new late payment rules is to make poor payment behaviour harder to ignore. The government wants a package of measures that combines clearer payment limits, stronger enforcement and more transparency around large companies’ payment practices.

The headline change: a 60-day payment cap

The central proposal is a maximum payment term of 60 days between businesses, with limited exemptions.

The government says the 60-day cap is intended to ensure smaller businesses are paid within a maximum of 60 days. It also says the restrictions will focus on payment terms between businesses of different sizes.

The proposed exemptions include contracts where:

• Both parties are large companies
• The purchaser is the smaller party
• The goods or services are being imported or exported

The government also says it wants to allow some limited flexibility, while stopping the most unfair payment terms. The 60-day limit would start no earlier than 2027.

That timing matters. SMEs should not treat the 60-day cap as current law. For now, it is a proposed change that depends on legislation.

What happened to the 45-day rule?

The earlier proposal included a possible move from 60 days to 45 days after a transition period. That is no longer being taken forward for now.

The government says it may revisit a further reduction in maximum payment terms in the future. If it does, it would consult again.

Mandatory interest on late payments

SMEs can already charge statutory interest on late commercial payments. Gov.uk says statutory interest is 8% plus the Bank of England base rate for business-to-business transactions.

However, many small businesses do not charge it. They may worry about damaging a customer relationship, or they may find that larger customers try to negotiate different remedies in the contract.

The government now intends to make statutory interest mandatory in all commercial contracts. It says contracts should contain a right to statutory interest at 8% above the Bank of England base rate, and that parties should no longer be able to agree an alternative remedy instead.

That could make a significant difference. It would shift late payment interest from something SMEs have to ask for, to something built into the rules.

A new deadline for disputing invoices

Another important proposal is a statutory time limit for raising invoice disputes.

The consultation included a suggested 30-day deadline for businesses to raise a dispute over supplied goods or services . If a dispute was raised after that window, the invoice would need to be paid in full within the agreed terms, with late payment interest applying where relevant.

The government says it intends to introduce a time limit for raising disputes, although the detailed policy still needs to be worked through. It also says construction contracts will need separate treatment because existing payment notice mechanisms already apply in that sector.

This matters because late disputes are a common stalling tactic. A customer may wait until close to the payment deadline before raising a query about a purchase order, delivery note or invoice wording. By then, the supplier may have already built the expected payment into its cashflow.

A clearer dispute window should help. However, SMEs will still need evidence that the invoice was sent, received and valid.

Stronger powers for the Small Business Commissioner

The government also intends to strengthen the Small Business Commissioner.

The proposed new powers include the ability to investigate businesses suspected of poor payment practices, adjudicate payment disputes outside court, and fine businesses for persistent late payment or breaches of late payment legislation.

The Small Business Commissioner has said the King’s Speech confirmed that the government will introduce a Bill to tackle late and unfair payments. The Commissioner’s summary of the proposed package includes stronger SBC powers, the 60-day cap, mandatory interest, a dispute time limit and board-level scrutiny for persistently late-paying large companies.

For SMEs, this could provide a stronger route to challenge poor payment behaviour without immediately moving to court action.

Board-level scrutiny for large companies

The planned late payment rules are not aimed only at individual invoice disputes. They are also designed to put pressure on large companies with poor payment records.

The government intends to require boards or audit committees of large UK businesses that pay a significant proportion of invoices late to publish commentary on Gov.uk. This would explain why payment performance is poor, what actions the company will take, and which previous actions have not been implemented.

This could make late payment a governance issue, not just an accounts payable issue.

For large companies, poor payment performance may become harder to hide. For SMEs, the hope is that more scrutiny will make large customers take payment terms and invoice processes more seriously.

Better late payment rules will not fix weak credit control

The proposed reforms are welcome. However, a change in the law is not the same as a collection service.

If your payment terms are vague, your invoices are incomplete or your customer can challenge when the payment clock started, you may still face delays.

That is why SMEs should treat the proposed late payment rules as a prompt to tighten their own terms, invoicing and credit control.

What SMEs should do now

Start by checking whether your payment terms are consistent across your quotes, proposals, engagement letters, order forms and invoices. If different documents say different things, disputes become more likely.

You should also make sure:

• Payment terms are clear and visible before work starts
• Customers know when the payment period begins
• Purchase order requirements are agreed in advance
• Invoices go to the right person or accounts payable inbox
• Descriptions of goods or services are specific enough
• Supporting documents are attached where needed
• VAT treatment, bank details and legal customer names are correct
• You have a clear process for chasing overdue invoices

It is also sensible to include wording that explains your right to charge statutory interest and debt recovery costs on late commercial payments. Even before the proposed reforms become law, statutory interest already exists for late business-to-business payments.

Use management accounts to spot cashflow pressure early

SMEs should also look at how late payments affect their wider cashflow.

Aged debtor reports, cashflow forecasts and management accounts can help you identify customers who are consistently slow to pay. They can also show whether debtor days are increasing, which customers create the biggest cashflow strain, and when late payments could affect payroll, tax bills or supplier payments.

The key is to stop treating credit control as a purely reactive process. By the time an invoice is severely overdue, the cash flow problem may already have spread throughout the business.

How THP can help

The new late payment rules should give SMEs more protection. However, businesses still need strong terms, good records and reliable cashflow controls.

If you need help improving your processes, THP’s friendly accountants can help you:

• Review your payment terms across documents
• Check your invoicing processes are clear and robust
• Improve your debtor reporting and bookkeeping records
• Strengthen your credit control procedures
• Build helpful cashflow forecasts
• Prepare management accounts
• Assess how late payment affects tax and working capital

If late payments are putting pressure on your business, speak to your THP account manager. They can help you review your systems, identify weak points and improve the information you use to manage cashflow.