April 1, 2026

UK Government Response to Late Payment Consultation

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INTRODUCTION

On 24 March 2026, the UK Government published its response to the "Late Payment Consultation: Time to Pay Up" consultation, which ran from 31 July 2025 to 23 October 2025 and received over 850 responses from businesses of all sizes and sectors across the United Kingdom.

The Government has confirmed its intention to introduce what it describes as the most significant legislation to tackle late payments in over 25 years, giving the United Kingdom the strongest legal framework on late payments in the G7. The Government intends to legislate as soon as Parliamentary time allows

SUMMARY OF KEY PROPOSALS

The Government intends to take forward the following headline measures:

• Small Business Commissioner powers: The Small Business Commissioner (“SBC”) will be granted new powers to investigate businesses suspected of poor payment practices, to adjudicate payment disputes outside of the court process, and to fine businesses—including significant potential fines for large companies that persistently pay their suppliers late or fail to comply with late payment legislation.
• Board-level scrutiny: Large UK businesses that have made a significant proportion of their payments late will be required to publish commentary explaining why their payment performance is poor and what actions they are taking to improve it.
• Maximum payment terms: A hard limit of 60 days will be imposed on payment terms between businesses, with strictly limited exemptions.
• Deadline for disputing invoices: A statutory time limit will be introduced for raising disputes, with businesses that fail to raise disputes within the time limit required to pay compensation to their supplier.
• Mandatory interest on late payments: All commercial contracts will be required to contain a right to statutory interest at 8% above the Bank of England base rate, with the current ability for parties to agree an alternative remedy to statutory interest removed.
• Additional reporting on statutory interest: Large businesses will be required to report on interest payments, including the value of interest owed and actually paid, which may trigger SBC investigations.
• Financial penalties for persistent late payers: The SBC will be empowered to identify and fine persistent late payers based on published reporting data, with fines linked to businesses' unpaid statutory interest liability.
• Prohibition of retention payments in construction contracts: The Government proposes to ban the deduction and withholding of retention payments under construction contracts, subject to further consultation on implementation.

MAXIMUM PAYMENT TERMS: IN MORE DETAIL

The proposal to cap payment terms at 60 days is of particular relevance to institutions that provide working capital finance to suppliers/originators—including supply chain finance, invoice discounting, factoring and trade receivables securitisations. The introduction of a hard cap on payment terms will directly affect the tenor of the receivables they finance, thereby shifting the existing working capital needs within the market. We therefore set out this proposal in greater detail below.

As a reminder, currently, the late payment regime permits businesses to agree to longer payment terms, provided they are not considered "grossly unfair". The Government intends to remove this exemption, effectively introducing a hard limit of 60 days on payment terms between businesses.

THE GOVERNMENT'S RATIONALE

The Government views stricter maximum-payment terms as essential to protecting smaller businesses that often face unfair payment terms when contracting with larger counterparties.

The proposal received 66% support from consultation respondents, though 27% disagreed. Many smaller businesses that disagreed with the proposal did so not because they opposed caps in principle, but because they considered 60 days too long, with some arguing that a 30-day limit would be more appropriate.

The Government acknowledged the importance of timely payment but considers it appropriate to introduce changes gradually to minimise potential disruption, and therefore considers 60 days to be a suitable starting position. The proposal will be implemented no earlier than 2027.

Further, the Government's view is that this maximum limit will work alongside other policies—such as the Fair Payment Code, the Reporting on Payment Practices and Performance Regulations 2017, and rules around bidding on central government contracts—which are designed to encourage payment terms well below the legal maximum.

CONCERNS RAISED BY LARGER BUSINESSES

Responses from larger businesses and representative groups raised a number of concerns. These included potential impacts on working capital, international competitiveness, and other adverse outcomes arising from prescriptive rules regarding how businesses contract with one another. Specifically, larger businesses argued that shorter payment times may: require large businesses to replace "lost cashflow" currently supported by extended trade credit; disadvantage businesses competing internationally; remove an important "bargaining chip" in contract negotiations; and rule out existing arrangements in certain sectors that benefit both purchasing businesses and their suppliers.

The Government acknowledged these as important concerns. However, it stated that while major disruption to businesses' working capital is unacceptable, some impacts are unavoidable and reflect deliberate policy design rather than unintended consequences. The proposal is intended to speed up payments between businesses, which necessarily means that larger businesses will transfer some of their working capital to their smaller suppliers where current payment terms exceed the 60-day maximum.

EXEMPTIONS

To address the most significant concerns raised by respondents and to maintain international competitiveness, the Government intends to allow limited exemptions for contracts where:

• Both parties are large companies: Where two large businesses are contracting with one another, the maximum payment term restrictions will not apply. The restrictions are focused on payment terms between businesses of different sizes.
• The purchaser is the smaller party: Where the smaller business is the one making the purchase, the cap will not apply.
• The goods or services are either being imported or exported: This exemption is designed to preserve international competitiveness and ensure that cross-border trade arrangements are not adversely affected. The Government stated that these exemptions balance protections for smaller businesses, who are often the most disadvantaged when negotiating payment terms, while allowing larger businesses to continue making arrangements that help them remain competitive both in the United Kingdom and abroad. Beyond the exemptions, the Government noted that existing flexibility on "when the clock starts" also provides some additional latitude for businesses, presumably referring to Section 4 of the Late Payment of Commercial Debts (Interest) Act 1998 which allows for time to undertake verification processes before the period for payment starts.

NEXT STEPS

The proposed measures will require a combination of primary legislation (an Act of Parliament) and secondary legislation to enact. The Government intends to legislate as soon as Parliamentary time allows.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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