Late payment has plagued supply chains for decades and for small firms who live by their cashflow – and waste time and money chasing unpaid invoices – it can often be a genuine threat to survival.
With this in mind, in March 2026, the government announced the “Time to Pay Up” package: a sweeping crackdown on late payments affecting large businesses and supply chains across the UK. These proposed reforms will significantly expand the powers of the Small Business Commissioner (SBC).
The intention is that persistent late payers – especially large businesses – will face serious consequences, including multi‑million‑pound fines in the most egregious of cases.
Whether you are chasing unpaid invoices or paying suppliers yourself, it is important to be aware of these proposed changes as they will affect how you do business.
Where did this come from?
In July 2025, the government’s Small Business Plan for the UK was announced. It included a consultation, run by the Department for Business and Trade on nine measures aimed at speeding up payment terms and times. Following the end of the consultation, discussions were held with interested parties and stakeholders on the proposals. The end result is what has now been announced.
These measures build on and strengthen legislation on late payments that was first laid out in the Late Payment of Commercial Debts (Interest) Act 1998
The figures
- It is estimated that late payments cost the UK economy almost £11 billion per year.
- Each year, late payments cause the closure of 14,000 businesses. That is the equivalent of about 38 businesses every day.
- 28% of businesses (that is over 1.5 million) are affected by late payments each year.
- At any one time, it is estimated that businesses are owed an estimated £26 billion in late payments. That averages out at £17,000 per business affected.
- When surveyed, 22% of respondent businesses said they spent staff time chasing late payments. Estimates place the average time spent at 86 hours per affected business per year. Across the economy, this adds up to 133 million hours of staff time annually.
- 15% of surveyed businesses said they have avoided doing business with specific customers based on their poor payment record.
What is changing?
1. New enforcement powers for the Small Business Commissioner
Hitherto, the SBC had the role of mediation and recommendations when it came to payment disputes. Now, under the new proposed framework, the Commissioner will be able to:
- investigate poor payment practices proactively, with intelligence sourced from public data and from small firms who contact the Commissioner with cases and complaints
- adjudicate payment disputes, offering a route to resolution without court action
- issue financial penalties, including fines potentially worth tens of millions of pounds for persistent offenders
- carry out investigations without naming the complainant, protecting small suppliers from possible retaliation
This development marks a significant shift in the Commissioner’s role, from encouragement to enforcement.
2. A hard 60‑day cap on payment terms
For a long time, large businesses have been able to set their own payment terms and periods of 90 or even 120 days were not unknown. Now those are being phased out.
Large businesses will be legally prevented from imposing payment terms longer than 60 days when dealing with smaller suppliers. However, the government has said that it will allow exemptions for contracts where:
- both parties are large companies
- the purchaser is the smaller party
- the goods or service are either being imported or exported
It is hoped that this will help to synchronise the UK with international best practice.
3. Mandatory interest on late payments
Late payment interest will no longer be optional or inconvenient to enforce.
- Statutory interest of 8% above the Bank of England base rate will apply automatically
- Small businesses will also be entitled to fixed compensation if non-paying large companies do not raise a dispute with the invoice within a new statutory time limit
- Interest will apply even if the contract makes no explicit reference to late payment in its terms
How does the interest work?
As an example, if a small business is owed £10,000 by one of its customers and is paid 60 days later than the agreed payment date, they will be owed £10,293.15 including mandatory interest (£10,000 plus £193.15 interest plus £100 compensation).
4. Increased transparency and board‑level accountability
Large companies already in scope of payment‑practices reporting face tighter requirements, including:
- More detailed disclosure of late payments and disputed invoices
- Greater scrutiny of payment behaviour in annual reports and directors’ disclosures
- Strong reputational pressure alongside formal enforcement
5. Construction sector retentions
The Government has confirmed plans to ban the withholding of retention payments in construction contracts, consulting on its implementation.
Retention money in construction is a percentage (typically 3–5%) withheld from interim payments to contractors. It is intended to serve as a security to ensure completion of work and rectification of any defects in that work. Held until the end of the defects liability period, it is supposed to ensure quality and cover costs if the contractor defaults on repairs. However, it is widely viewed as a “cash flow killer” for subcontractors, with around £4.5 billion tied up annually in the UK, often at risk if the main contractor becomes insolvent.
6. Statutory invoice dispute deadlines
At the start of the consultation period, the government proposed introducing a deadline for disputing invoices to encourage businesses to raise potential disputes early so they could be resolved before becoming late.
The consultation included a measure which would introduce a deadline of 30 days for businesses to raise a dispute over a good or service with their supplier. Businesses that raised a dispute after 30 days would be required to pay compensation to the invoicing party.
Following feedback, the government confirmed that it wanted to ensure that any new dispute policy did not cut across existing ones. It also said it would make clear how a dispute window would work in detail, and the exact length of the proposed statutory window given varying feedback from businesses about whether 30 days was appropriate.
What happens next?
These changes are not law at the moment. That will need both primary and secondary legislation. However, businesses should start to look at auditing their payment systems, reviewing their invoice dispute processes and checking the payment terms in their contracts. Proactive engagement with what the law may require will put businesses in a much stronger position when legislation is introduced.
Action points
For businesses that are owed money
- Know your rights: once legislation comes into effect, you will be legally entitled to statutory interest on late invoices by default and compensation if the invoice is disputed late
- Escalate confidently: the SBC will be able to investigate without exposing you as the complainant
- Tighten contracts: in contracts with payment terms beyond 60 days, be prepared to insist on payment within 60 days once legislation comes into effect
- Keep records: clear invoices, delivery evidence and correspondence will help to strengthen your position
If you have historically avoided pushing back for fear of losing work, these changes are designed to rebalance that power dynamic.
For businesses that pay suppliers
If you are a larger business, or one with complex supply chains, the risk profile is changing materially.
Key compliance steps:
- Review standard payment terms and consider amending anything exceeding 60 days
- Update finance processes to ensure invoices are approved, queried or paid promptly
- Raise disputes early: delays beyond the statutory window may no longer be defensible once the proposals become law
- Train teams (procurement, finance and legal) on the proposed new rules
- Monitor reporting obligations if you fall within payment‑practices reporting thresholds
Will these rules apply UK-wide?
Although the government has said that it wants the rules to apply across the UK, late payments are a devolved matter in Scotland, Wales and Northern Ireland. Therefore, there will be ongoing discussions with the devolved governments to make sure there is legislative consistency UK-wide.
