UK launches late payment legislation

45-day payment terms limit on the cards as business secretary decries £11bn costs and company closures

Maximum payment terms, new audit committee responsibilities and financial penalties are just some of the measures being considered to tackle the “scourge” of late payment in the UK. 

Announcing a short consultation period, business secretary Jonathan Reynolds said: “A healthy cash flow is critical for the survival and growth of the UK’s small businesses. Paying hard-working employees, settling bills with other businesses and investing in new capital, skills and ideas for the future; all of this relies on timely and fair payment.”

The government estimates that late payment costs the economy almost £11bn a year and closes 38 businesses every day. To tackle this, the government has put forward a package of new measurers that it hopes will improve business-to-business payment behaviour, which will also cover long term and disputed payments as well as practice around retention payments.

Quick consultation

As part of this process, the Department for Business and Trade has launched a consultation, which will close on 23 October 2025. Stakeholders are invited to respond to an online survey. 

The survey will cover eight elements of the proposed late payments legislation:

• Audit committees and board-level scrutiny of large company payment practices: the government believes further positive change could be achieved by increasing discussion and scrutiny of large companies’ payment practices at board level.
• Maximum payment terms: the policy will effectively limit payment terms between UK businesses to 60 days. Subject to further consultation, this policy may subsequently reduce this limit from 60 days to 45 days after five years.
• A deadline for disputing invoices: the policy will introduce a 30-day invoice verification period. Businesses who wish to raise a dispute will need to do so within 30 days of receiving an invoice.
• Mandatory statutory interest: the policy will amend The Late Payment of Commercial Debts (Interest) Act 1998, making the statutory interest rate payable on late payments mandatory. This will remove the ability to negotiate compensation rates lower than the statutory rate and increase existing financial incentives to pay invoices on time.
• Additional reporting on statutory interest: this will further increase transparency around poor B2B payment behaviour and informs other policies that aim to improve the utilisation and payment of statutory interest.
• Financial penalties for persistent late payers: this will use payment behaviour data submitted by businesses under The Reporting on Payment Practices and Performance Regulations (2017) to identify and issue financial penalties to persistently late-paying businesses, with penalties based on businesses’ unpaid statutory interest liability.
• Additional powers for the SBC, including assurance of payment reporting data: this aims to improve the SBC’s ability to conduct investigations into poor B2B payment behaviour (beyond its current complaints scheme), allow it to provide legally binding arbitration in disputes and impose financial penalties or make arbitration awards after an investigation or arbitration process.
• Use of retention clauses in construction contracts: this aims to either prohibit the use of retentions or to introduce requirements to protect retention funds deducted and withheld from insolvency and late or non-payment.

Payment code

The government has already launched a new Fair Payment Code, delivered by the Small Business Commissioner, with the first cohort of awardees announced in January 2025. The government is also currently legislating to require large companies to include their payment performance within their annual reports, although business organisations and professional bodies have expressed concerns over increased regulatory burdens.

Calling the reforms “bold and ambitious”, policy chair of the Federation of Small Businesses (FSB) Tina McKenzie said: “Making sure businesses are paid on time, that our high streets thrive, and creating conditions in which everyone can start and succeed in business are crucial priorities for small businesses, communities and the economy.”