On 24 March 2026, the Department for Business and Trade published its long-awaited response to the 2025 consultation on tackling poor payment practices. The outcome signals a clear intention by the UK Government to legislate to address what it has described as the “scourge” of late payments.

The issue remains significant. Late payments are estimated to contribute to the closure of 38 businesses per day and cost the UK economy approximately £11 billion annually (as per Government findings). Small and medium-sized enterprises (SMEs), in particular, continue to bear the brunt of cash flow disruption caused by delayed payments.

Speaking on the matter, Business Secretary Peter Kyle said:

“Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable.

We are unveiling the strongest, most robust changes to payment laws in over a generation – laws that will transform the fortunes of small businesses for years to come and make their day to day lives much easier.”

Four Core Issues

The Government’s consultation identified four interrelated causes of poor payment culture:

· Late payments – failure to pay within agreed terms (or within 30 days where no terms are specified);

· Long payment terms – contractual terms extending beyond 60 days;

· Disputed payments – delays arising from disagreements over goods or services; and

· Retention practices (construction sector) – withheld payments that may be lost or delayed, particularly in insolvency scenarios.

The proposed reforms aim to address each of these areas through a combination of mandatory rules, enhanced enforcement, and increased transparency.

Key Proposed Reforms

1. Mandatory 60-day payment terms
The Government intends to introduce a maximum 60-day payment term for most business-to-business contracts, representing a clear move away from the current flexibility to agree extended payment periods. However, certain exemptions are likely to apply such as certain contracts between large companies where the customer is the smaller party and the arrangement relates to imports or exports.

2. Mandatory statutory interest on late payments

The existing framework under the Late Payment of Commercial Debts (Interest) Act 1998 will be strengthened by making statutory interest mandatory. Interest will be applied automatically, increasing the financial consequences of late payment.

3. Statutory deadline for invoice disputes A statutory time limit will be introduced for raising disputes on invoices.

Where a dispute is raised outside that deadline, suppliers will be entitled to compensation. This is aimed at preventing the use of delayed disputes as a tactic to defer payment and will require businesses to act more promptly when reviewing invoices.

4. Board-level accountability for late payments

Large companies that are persistently late in paying suppliers will be required to publish commentary from their boards or audit committees. This will need to explain the reasons for late payment and outline steps being taken to address the issue, elevating payment practices to a governance and reputational concern.

5. Financial penalties for persistent late payers

The proposed regime includes the introduction of fines for businesses that repeatedly fail to pay on time, signalling a shift towards more active enforcement.

6. Expanded powers for the Small Business Commissioner

The Small Business Commissioner will be given enhanced powers to investigate poor payment practices, adjudicate disputes, and issue fines. This is expected to provide smaller businesses with a more effective route to challenge unfair treatment.

Implications for Businesses

If implemented, these reforms will have a wide-ranging impact across sectors. Businesses should begin to consider:

· Contract reviews, including key provisions such as payment terms, dispute mechanisms, and interest provisions;

· Process changes to ensure disputes are raised within statutory deadlines;

· Cash flow planning, especially where current practices rely on extended payment cycles; and

· Governance and reporting for larger organisations subject to enhanced transparency requirements.

What Next?

The Government has confirmed its intention to legislate “as soon as Parliamentary time allows.” Businesses should monitor developments closely and be prepared to engage with any further consultations or calls for evidence. Organisations that proactively review their contractual arrangements and internal processes will be best placed to adapt to the new regime.

If you would like to understand how these proposed reforms may impact your business, or require support reviewing and updating your contracts and payment practices, please get in touch with our commercial team on 02920 345511 or at commercial@berrysmith.com.