Article summary:
- The UK government has announced the biggest overhaul of late payment law in over 25 years.
- A hard cap of 60 days will apply to payment terms when large businesses pay smaller suppliers.
- Statutory interest at 8% above the Bank of England base rate will become mandatory across all commercial contracts.
- Customers will have just 30 days to raise an invoice dispute, after which interest starts running automatically.
- The Small Business Commissioner gains real enforcement powers, including the ability to fine persistent late payers.
On 24th March 2026, the government unveiled the most significant late payment legislation in a generation following the consultation period. While they have not yet passed through parliament and become law, the proposed reforms change the rules on payment terms, interest, and enforcement in ways that directly affect how businesses get paid. This article explains what is changing, when it takes effect, and what you should do now to make the most of the new rules.
The 60-day payment cap
The biggest change is a hard cap on payment terms. Large businesses will no longer be able to impose 90 or 120-day terms on smaller suppliers. Under the new rules, payment must be made within 60 days of a valid invoice. Any contractual term that tries to extend beyond this will simply be unenforceable. After a transition period of around five years, the cap is expected to be reduced further to 45 days.
For many smaller businesses, this is a real change. Large buyers have long used extended payment terms as a way of managing their own cash flow at the expense of their suppliers. That practice is being brought to an end.
Mandatory interest on late payments
Under the Late Payment of Commercial Debts (Interest) Act 1998, businesses have always had the right to charge interest at 8% above the Bank of England base rate on overdue invoices. The problem is that very few ever claimed it, often for fear of upsetting the customer relationship.
Under the newly proposed rules, interest will become mandatory and automatic. Any contract clause that tries to water it down or remove it entirely will be void. With the base rate currently at 4.5%, statutory interest now runs at 12.5% per year from the day after payment was due.
To put that in concrete terms: if a customer owes you £10,000 and pays 60 days late, you will be owed £10,293.15. That is the original debt plus £193.15 in interest and a £100 fixed compensation payment. You do not need to ask for it. It is owed to you automatically. For more on claiming interest and compensation, see our article on the costs you can claim.
The 30-day invoice dispute deadline
Customers will have 30 days from receiving an invoice to raise a genuine dispute. If they miss that window, they will owe interest from the original due date, regardless of any later queries.
This is a significant change because one of the most common tactics used to delay payment is raising a spurious query about an invoice weeks or months after it was issued. The new deadline closes that loophole. If a customer has a concern, they need to raise it promptly or pay the invoice.
The Small Business Commissioner gets more power
The Small Business Commissioner has historically been limited to mediation and naming-and-shaming. That changes under the new rules. The Commissioner will be able to investigate payment practices, adjudicate disputes without the need for court proceedings, and impose substantial fines on persistent late payers.
Boards and audit committees will also be required by law to review and publicly explain their payment practices. This moves late payment from a procurement issue to a boardroom one. Companies with poor records will face reputational pressure as well as financial penalties.
For smaller creditors, this creates a new route to resolution that does not involve issuing a claim. If a large customer persistently pays late, a complaint to the Commissioner may now be more effective than a letter before action.
What you should do now
The legislation still needs to pass through Parliament, so the exact timing of implementation is not yet confirmed. However, the direction of travel is clear, and businesses should start preparing now. Here are the practical steps to take:
- Review your contracts. Check any terms that allow customers more than 60 days to pay. Once the new law takes effect, those terms will be unenforceable for the excess period.
- Update your invoice templates. Include a clear statement of the 30-day dispute window and your right to statutory interest. Customers need to understand that the rules have changed.
- Start claiming interest now. You do not need to wait for the new law. Under the 1998 Act, you already have the right to charge statutory interest on overdue invoices. Very few businesses do this. Including an interest calculation in your letter before action sends a clear message.
- Use the Commissioner. When the new enforcement powers take effect, early complaints about persistent offenders will help build the evidence base for investigation. Do not treat the Commissioner as a last resort.
Final words
These reforms represent a big change in the law. For years, the rules on late payment existed but were rarely enforced. The 2026 changes are designed to make interest automatic, disputes time-limited, and enforcement real. If you are currently dealing with a customer who is taking too long to pay, do not wait for the legislation. The right to charge interest and compensation already exists under the Late Payment of Commercial Debts (Interest) Act 1998. The team at Debt-Claims can help you understand your options and take the right steps quickly.
FAQs
When will the new 60-day payment cap come into force?
The government announced the reforms on 24th March 2026, but they still need to pass through Parliament. Timing has not been confirmed, but implementation is expected to begin in late 2026. Some provisions, including the 45-day cap, will be phased in over a longer period. Keep an eye on the government’s consultation response for updates.
Does the 60-day cap apply to all businesses?
The cap applies when a large business is paying a smaller supplier. Limited exemptions exist, for example, where the purchaser is actually the smaller party, or for certain import and export transactions. Business-to-business transactions between two companies of similar size are not covered in the same way.
Can I already charge interest on overdue invoices?
Yes, under the Late Payment of Commercial Debts (Interest) Act 1998, you already have the right to charge interest at 8% above the Bank of England base rate, plus fixed compensation of between £40 and £100 per invoice, plus reasonable recovery costs. The 2026 reforms make this automatic rather than optional.
What is the Small Business Commissioner, and how do I complain?
The Small Business Commissioner is a government body set up to help small businesses resolve payment disputes with larger companies. Currently, it can investigate and mediate. Under the new rules, it will also be able to adjudicate and fine. You can submit a complaint directly through their website.
What if my customer is overseas?
If your contract specifies English law as the governing law, the reforms will likely apply even to overseas customers. If the contract is governed by foreign law, the position is more complex. Checking the governing law clause in your contracts is an important first step. Our team can advise on cross-border situations.
