Time to pay up? Proposed legislation to tackle epidemic of late payments

The Department for Business and Trade has proposed what it describes as the toughest crackdown on late payments in over 25 years, aimed at improving cashflow for SMEs and addressing the entrenched slow‑payment practices of some larger businesses.

I wrote last year about the government’s intention to tackle late payments as part of its wider small business strategy. That was followed by a consultation in Q3 2025, which attracted over 850 responses and underlined the depth of interest and concern around the issue. The government has now published its response to the consultation, announcing its intention to legislate on the “scourge of late payments” as soon as parliamentary time allows. 

The proposals include an array of measures designed not only to regulate payment terms but also to create strong disincentives to late payment, both reputational and financial. 

The headline measure is the introduction of a maximum payment term of 60 days (with further reductions to be considered in the future). As the legislation is primarily intended to protect SMEs, limited exemptions will apply where both contracting parties are large companies or the purchaser is the smaller party, or where goods are being imported or exported.

While the Late Payment of Commercial Debts (Interest) Act 1998 already entitles businesses to claim interest on late payments, in practice this is often waived to preserve commercial relationships. Under the new proposals statutory interest on late payments will be made mandatory, set at 8% above the Bank of England base rate. Businesses will no longer be able to exploit commercial bargaining power to negotiate lower rates or alternative remedies for late payment. These measures will be supported by reporting requirements for large businesses regarding the amount of statutory interest owed and paid to suppliers, as well as requirements for board level and audit committee scrutiny of payment practices.

While SMEs continue to face an extremely challenging trading environment, these proposals are to be welcomed. Late payment is a common trigger for financial distress, and can have a domino effect across the supply chain. Cashflow pressure caused by unpaid invoices may lead to covenant breaches, missed payments and ultimately formal insolvency. The government estimates that late payments cost the UK economy £11bn a year and contribute to more than a thousand business failures each month. Improved payment discipline could ease cashflow pressure, reduce reliance on short‑term funding and, in some cases, prevent distress from taking hold in the first place.