The UK Government has confirmed a major package of reforms to tackle late payments, a persistent pressure point for small businesses, costing the economy £11 billion a year and contributing to 38 business closures every day.
The response to last year’s “Time to pay up” consultation sets out a significantly strengthened legal framework, designed to improve payment culture across UK supply chains, and would amount to the toughest late‑payment laws in the G7.
Key proposed changes include:
- 60‑day maximum payment terms for B2B transactions (with limited exemptions). Many businesses will need to update their standard terms to comply.
- Mandatory statutory interest at 8% + base rate, removing the ability to agree lower contractual rates. This is a big shift from current market practice.
- New rules on disputing invoices, including introducing a statutory time limit for disputing invoices. Businesses that do not raise disputes within the time limit will need to pay compensation to their supplier.
- Increased transparency, with large companies required to report on statutory interest owed versus paid.
- Board‑level accountability, requiring organisations with poor payment performance to publish improvement plans on GOV.UK.
- Significant fines for persistent late payers and those who ignore the legislation.
- Expanded powers for the Small Business Commissioner, including the ability to investigate and settle payment disputes and impose penalties.
- A proposed ban on retention payments in construction contracts, subject to further consultation.
What needs to happen now and when will this take effect?
These measures are not yet law. The Government has stated that legislation will be introduced “when Parliamentary time allows”.
In practice, this means:
- A Bill must be drafted and introduced to Parliament.
- It must pass through the usual Commons and Lords stages (usually at least several months).
- Secondary legislation and guidance will then likely be needed to implement reporting obligations and enforcement powers.
In view of the above, implementation is unlikely before 2027, even if a Bill is introduced later this year. Even so, larger businesses and anyone currently operating with long payment terms would be well advised to start reviewing their payment processes and standard terms in the coming months.
These reforms, if passed, would mark a real shift, moving improved payment culture from best practice to a regulatory requirement. Businesses that prepare early will be in the strongest position.
