| 25 Mar 2026 |

Late payment: UK to go ahead with "strongest laws in G7"

The UK Government has confirmed plans to proceed with reforms that will give the UK one of the toughest late payment regimes in the world. This will include fines for persistent late payers, mandatory late payment interest of 8% above base, maximum 60 day payment terms (with some exceptions), a time limit for disputing invoices and a new low cost adjudication process. But as we explain below, the devil will be in the detail.

What's all this about?

In 2025, the UK Government consulted on a raft of proposed reforms to late payment law – citing research estimating the cost of delayed payments at £11 billion per year, affecting over 1.5 billion businesses. It has now decided to go ahead with almost all of the package of reforms announced last year.

Government rhetoric on reform proposals isn't always justified – but in this case, it's no exaggeration to describe these measures as "the most ambitious legislation to tackle late payments in over 25 years" and "the strongest legal framework in the G7".

Rich Offord, Partner

What changes will be made and why are they significant?

It's probably easiest to explain this by way of an example:

Late payment: an example

ABC Ltd has 30 suppliers, of which 20 have fewer than 50 staff. Where possible, it negotiates payment terms of 90 days, but if it can't, it often looks to extend payment times by finding ways to dispute invoices (so as to help its own cashflow position), sometimes waiting until just before payment is due before raising an issue. When it comes to late payment interest, ABC usually looks to limit the rate to 3-4% above base (its aim being to displace the statutory rate of 8% above base, which would otherwise apply). Under the current law, none of this is necessarily unlawful – and although suppliers might have some scope to challenge certain aspects of ABC's approach to payment, such proceedings are very rare in practice.

If the proposals are implemented, the implications for ABC would be as follows:

Fines: The 20 suppliers with fewer than 50 staff could complain to the Small Business Commissioner (SBC) about ABC's approach, particularly if it regularly pays late and/or appears to be disputing invoices without reasonable justification. This could ultimately lead to financial penalties being imposed. Further exposure to fines might occur if ABC is subject to the reporting regime (see below).
Maximum payment terms: ABC will have to reduce its payment terms from 90 to 60 days, unless an exemption applies. The Government has indicated that exemptions will be available if both parties are large companies (see below for probable definition), the purchaser is the smaller party, or the goods or services are being imported or exported. There will also be a transition period, starting "no earlier than 2027" and plans to reduce maximum payment terms to 45 days in the longer term have been dropped.
Deadline for invoice disputes: If ABC wants to dispute an invoice, it will have to do so within a set period – which the Government originally suggested would be 30 days from receipt, but is now unclear. If it fails to raise a dispute within that time, it would – in principle - be liable to pay interest if it fails to pay the invoice on time.
Mandatory statutory interest: If ABC pays late, its suppliers will be able to claim interest of 8% above the Bank of England base rate, rather than the 3-4% contractual remedy that it usually looks to agree. The higher statutory rate may make it more attractive for some suppliers to pursue claims.
Adjudication for disputes with smaller suppliers: The 20 suppliers with fewer than 50 staff could refer any late payment disputes to the Small Business Commissioner for adjudication, which is intended to be a faster, lower cost alternative to claiming through the courts. We would therefore expect to see more disputes of this type being raised than in the past, particularly in cases where the relationship between the parties has broken down.
Reporting regime: There is already a reporting regime for larger companies, which requires them to provide data to the Government on their payment practices. If ABC falls within this regime, then there would be additional implications as outlined below.
Board-level scrutiny: If a significant proportion of ABC's total late payments to suppliers have been made late, ABC's board (or its audit committee, if it has one) would be required to publish commentary explaining why and what it intends to do about it. It would also have to explain what actions from any previous commentary have not been implemented and why.
Construction sector: If ABC is active in the construction sector, it will no longer be able to make use of retention clauses in any construction contracts. However, the construction sector already has a specific framework to promote prompt payment and the Government has indicated that it does not wish to cut across this regime (beyond prohibiting retention clauses).

Size thresholds for the reporting regime

The reporting regime in the Payment Practices and Performance Regulations 2017 applies to companies and LLPs which satisfy two of the following criteria on the business' last two balance sheet dates:

turnover of more than £54 million;
balance sheet total of more than £28 million; and
more than 250 employees.

Changes for businesses caught by the reporting regime

If ABC is caught by the reporting regime, then as well as reporting twice yearly on its payment practices more generally, it will be required to report the total statutory late payment interest owed to suppliers and the total which has actually been paid out. Perhaps more importantly, though, ABC could find itself being investigated by the SBC if its payment data suggests that it is paying a significant proportion (say, 25%) of suppliers late – which could ultimately lead to a fine. It follows that businesses caught by the reporting regime are likely to have a significantly greater exposure to the risk of fines than those that are not.

What’s not yet clear?

Although the proposals are certainly ambitious, there is also a striking lack of detail. Key questions that will need to be answered before the proposals can be implemented include:

What conduct will lead to fines and how will they be calculated? For example, for businesses caught by the reporting regime, what proportion of suppliers will need to have been paid late for the SBC to investigate? What other practices will be considered serious enough to justify fines? Will there be a requirement to show a pattern of behaviour or could a single instance be sufficient?
How much extra resource will the SBC given? The Government has promised to address this issue, but according to its last annual report, the SBC only had 12 employees; it will need a substantial increase in budget and staffing if it is to both carry out investigations and manage an adjudication system for small businesses.
What will be the time limit for disputing invoices? Originally the Government proposed 30 days, but it now looks as if it may be open to revisiting the period allowed.
How will the adjudication system be paid for? The Government has said that it will give the SBC power to recover costs but has not said how these will be apportioned between the parties to any dispute. If the Government is serious about encouraging small businesses to use it, then a higher share of the cost will probably need to be borne by larger businesses.
How will the adjudication system work in practice? For example, will it be compulsory if a small business requests it and the SBC agrees that the dispute is within scope? And what will be the process? Adjudication in the construction sector might provide a model – but it's not clear if this forms part of the Government's thinking.
Will there be any exemptions? As noted above, there will be some exemptions from the measures relating to maximum payment terms. Current late payment legislation also has some exemptions for financial services contracts (in relation to the reporting regime and, to a lesser extent, in relation to late payment interest and payment terms). Contracts with no meaningful connection to the UK are also effectively carved out of the current legislation.

What's next?

The Government has said that it plans to legislate "as soon as Parliamentary time allows", the reference to the transition period for maximum payment terms being "no earlier than 2027" suggests that the Government envisages putting legislation before Parliament in the next 12-18 months – and a Bill may be included in the King's Speech, which is expected to take place in May 2026. Whilst further consultation is likely to be needed on some of the detailed points highlighted above, it's possible that the Government intends to deal with this via secondary legislation, with the Bill providing an "over-arching framework". If this is correct, it will mean that some of the detail may not be addressed in the Bill at all and would have to be dealt with once it had been passed (potentially delaying the introduction of the measures outlined above while consultation takes place).

Read Sarah-Jane Denton Profile