The UK Government has confirmed a package of proposed reforms aimed at tackling late payment across business supply chains, following its “Time to pay up” consultation. The measures are intended to address what ministers describe as a systemic issue affecting small businesses, with late payments estimated to cost the UK economy £11 billion each year and linked to tens of thousands of business failures.
The proposals, if enacted, would represent the most significant change to the UK’s late payment framework since the Late Payment of Commercial Debts (Interest) Act 1998. The Government’s stated objective is to move payment discipline from a matter of commercial negotiation into a more prescriptive legal regime, with clearer rights, mandatory financial consequences and enhanced enforcement.
Although the reforms are not yet law, the policy direction is clear. Businesses operating with extended payment terms or informal dispute practices are likely to face material compliance adjustments if the legislation proceeds in its current form.
Key legal reforms and how they would operate
The proposed framework introduces several substantive changes to how commercial payments are agreed, enforced and monitored.
A central feature is the introduction of a statutory 60 day maximum payment term for business to business transactions, subject to limited exemptions. This would place a hard cap on payment periods, replacing the current position where longer terms can be agreed provided they are not “grossly unfair”.
The Government has also indicated that statutory interest on late payments would become mandatory. Under the existing regime, suppliers can claim interest at 8 percent above the Bank of England base rate, but contractual terms often displace or dilute this right. The reform would remove that flexibility, requiring interest to apply automatically where invoices are paid late.
New rules are also proposed to govern invoice disputes. A statutory deadline for raising disputes would be introduced, after which the invoice would be treated as valid for payment purposes. Where a business fails to dispute within the permitted timeframe, financial consequences, including compensation, would follow.
In addition, the package places greater emphasis on transparency and corporate accountability. Large companies would be required to report not only on payment performance, but also on the level of statutory interest owed compared with what is actually paid. Businesses with poor payment practices could be required to publish improvement plans, increasing reputational exposure alongside legal risk.
Expanded enforcement powers and regulatory oversight
A notable aspect of the proposals is the expansion of enforcement mechanisms, particularly through the Small Business Commissioner.
The Commissioner’s role would move beyond its current advisory and mediation function, with powers to investigate payment practices, compel the disclosure of information and impose financial penalties on persistent late payers. This reflects a shift toward active regulatory intervention rather than reliance on individual suppliers to enforce their rights.
The introduction of fines for non compliance further strengthens the framework. Businesses that systematically breach payment rules or ignore statutory requirements could face direct financial sanctions, in addition to liability for interest and compensation.
The Government is also consulting on a potential ban on retention payments in construction contracts, an area long associated with delayed or withheld payments. If adopted, this would represent a sector specific intervention aimed at addressing entrenched payment practices.
Legal status and expected legislative timeline
At present, these measures remain proposals and have not yet been enacted into law. The Government has indicated that legislation will be introduced when Parliamentary time allows, meaning the timing remains uncertain.
In practical terms, implementation would require the introduction of a Bill, followed by passage through both Houses of Parliament. Further secondary legislation and guidance are likely to be needed, particularly in relation to reporting obligations and enforcement procedures.
On a realistic assessment, the reforms are unlikely to take effect before 2027. That said, the level of detail already published suggests that the core elements of the framework are unlikely to change significantly, even if the precise scope or timing is refined during the legislative process.
Practical implications for businesses
For businesses, the proposed reforms would alter both contractual practices and operational processes.
Organisations that currently rely on extended payment terms, particularly those exceeding 60 days, would need to revise their standard terms and supplier agreements. Contract drafting would need to reflect the mandatory application of statutory interest and incorporate compliant dispute procedures within defined time limits.
Finance and accounts payable functions would also face increased scrutiny. Systems would need to support timely invoice processing, accurate tracking of payment deadlines and the calculation of statutory interest where applicable. The reporting obligations for larger companies introduce an additional compliance layer, requiring reliable internal data and governance oversight.
There is also a clear governance dimension. Board level accountability for payment performance signals that late payment is being treated as a matter of corporate conduct rather than purely operational administration. This may influence internal audit priorities and risk management frameworks.
Strategic outlook and next steps
The proposed reforms indicate a decisive move toward a more interventionist approach to payment practices in the UK. If implemented, they would narrow the scope for contractual flexibility and increase both the financial and regulatory consequences of late payment.
While the legislation is not yet in force, businesses would be well advised to begin reviewing their payment terms, dispute procedures and internal processes in anticipation of change. Early alignment with the proposed framework is likely to reduce disruption and compliance risk once the new regime is introduced.
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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 - a Marketing Agency for the Professional Services Sector.
