Late payments – time to prepare for legislative changes

2 April 2026

Following our article last August about the Government's plans to support SMEs and which are summarised in its document Backing your Business' the Department for Business and Trade has now published its response to its earlier consultation on tackling late payments - an issue that forces many small businesses to close and which costs the UK economy £11 billion per year.

The Government intends to bring forward legislation as soon as possible to implement its plans which are summarised below:

• To strengthen the powers of the Small Business Commissioner, including its power to investigate businesses suspected of poor payment practices, adjudicate payment disputes outside of the court process, and levy significant financial penalties on businesses that persistently pay their suppliers late.
• To impose maximum payment terms of 60 days, with strictly limited exemptions subject to further consultation.
• To require payment of interest on all late payments at 8% above the Bank of England base rate.
• Introduce time limits for raising disputes on invoices.
• To require the boards or audit committees of any persistently late-paying large company to publish commentary on why payment performance is poor and what actions they are taking to fix this.
• To prohibit the deduction of retentions in construction contracts, consulting on its implementation.

To prepare for these changes businesses are now advised to take the following steps:

• Ensure payment terms with suppliers are a maximum of 60 days, unless using the limited exemptions i.e. when both parties are large companies, when the purchaser is the smaller party, or when the goods or services are being either imported or exported.
• Pay all suppliers on time and ensure payment systems are ready to track and pay interest on all late payments.
• Report twice yearly on payment performance which is legally required for large companies under the Reporting on Payment Practices and Performance Regulations 2017.
• Include payment performance headlines in annual reports (as legally required for large companies from January 2026).

The full consultation response can be read here.

If you have any specific queries or concerns about these proposals please contact our External Affairs Manager, Joanna Richardson [email protected]