The UK government recently announced a new package of measures aimed at tackling late payments, including plans to introduce a maximum 60-day payment term for many supplier invoices.
The reform is part of what the government describes as its ‘toughest crackdown on late payments in more than 25 years’. The goal of the new legislation is to reduce the pressure long payment terms↗ place on smaller businesses, many of which are forced to wait months to receive cash they are already owed.
For finance teams, the announcement signals a clear shift. Payment practices are moving higher up the regulatory agenda, and the long invoice terms that have wreaked havoc on many smaller businesses’ cash flow↗ planning are becoming harder to justify.
What’s changing?
The headline proposal is a legal cap of 60 days on payment terms, particularly where large businesses are buying from small suppliers. This will come in the form of an update to the UK’s existing late-payment legal framework
Under the current regime, longer payment terms can still be used in some cases, as long as they are not considered “grossly unfair” to the supplier. The government now wants to replace that case-by-case test with a stricter rule, making 60 days the legal maximum in most relevant cases.
There will be some exceptions. According to the government’s response, exemptions are expected where both parties are large businesses, where the purchaser is the smaller party, and for some import and export transactions.
Alongside the 60-day cap, the government also plans to strengthen the wider late payment framework. That includes:
- Making statutory late payment interest mandatory in commercial contracts
- Requiring a right to interest at 8% above the Bank of England base rate
- Introducing a 30-day deadline for raising disputes on invoices in most cases
- Expanding the powers of the Small Business Commissioner to investigate and enforce poor payment practices
- Increasing reporting requirements for large companies with weak payment performance
The overall package is designed to make late payment more visible, more expensive, and harder to defend.
Why it matters
Late payment is often discussed as an administrative issue, but in practice it is a working capital issue.
When payment terms stretch to 60, 90 or even 120 days, suppliers are left funding the gap. For smaller businesses, that can mean cash flow pressure, delayed hiring, reduced investment, or difficulty paying their own suppliers on time.
The government’s own research published in 2025 says late payments cost the UK economy £11 billion a year↗ and contribute to dozens of business closures every day. Whether or not the new rules fully solve the problem, they reflect a broader recognition that payment terms have a real impact on business resilience.
What the new rules are trying to stop
The reforms target a few common practices that cause disruption to smaller businesses.
First is the use of long standard payment terms by larger buyers, especially where suppliers have little room to negotiate.
Second is the late disputing of invoices. Under the new framework, businesses would generally have 30 days to raise a dispute over the goods or services received. That is intended to prevent invoices from sitting unpaid for weeks before a challenge is raised at the last minute.
Third is weak accountability. Large businesses with poor payment records are likely to face more detailed reporting obligations, including commentary on why performance is poor and what they are doing to improve it.
In other words, the government is not only trying to change when businesses pay, but also how payment behaviour is monitored and explained.
What finance teams should take from it
For larger businesses, this is a signal to review supplier payment terms, dispute processes, and accounts payable↗ readiness. Payment performance is increasingly a compliance and reputational issue, so there’s no room for skirting around unclear payment terms.
For smaller businesses, the announcement is a sign that invoice payment terms may become easier to challenge, at least where they exceed the proposed 60-day limit. If you’ve historically suffered as a result of late payments, you can expect a smoother accounts receivable process↗ in the near future.
The bigger picture
A 60-day cap would be a meaningful shift in the UK payment landscape, even if some businesses argue it does not go far enough.
It won’t eliminate late payments overnight. But it does raise the floor on what counts as acceptable payment practice, and puts more pressure on businesses that have relied on long supplier terms as a source of working capital.
For finance leaders, that makes this policy announcement significant. It’s a reminder that payment discipline, cash flow management, and supplier relationships↗ are becoming more closely connected than ever.
