Tackling Late Payments: Major Reform on the Horizon

Tackling Late Payments: Major Reform on the Horizon

On 30 July 2025, the UK government unveiled its Small Business Plan. The proposed reforms aim to tackle longstanding issues around delayed invoice payments – a problem that continues to place significant pressure on small and medium-sized businesses (“SMEs”) across the UK.

A new public consultation, open until 23 October 2025, invites feedback on a range of legislative proposals that could significantly reshape how payment terms operate in commercial contracts.

What’s Changing?

The government has proposed a comprehensive suite of legislative changes designed to make late payments less common, less acceptable, and more costly for persistent offenders. Key proposals include:

• Capping payment terms at 60 days (with a future reduction to 45 days being considered). The goal is to provide SMEs with greater certainty and faster access to cash, particularly in supply chains dominated by larger companies.
• Mandatory statutory interest on late payments. This would prevent parties from agreeing lower rates or contracting out altogether.
• Introducing a 30-day limit for raising invoice disputes to prevent last-minute, bad faith objections that delay payment. If no dispute is raised within that period, the full amount becomes payable.
• Greater powers for the Small Business Commissioner to investigate practices, conduct spot checks and levy financial penalties.
• Requiring boards or audit committees to review payment data prior to government submission and inclusion in directors' reports.
• Transparency requirements for reporting the total statutory interest owed and paid to suppliers.
• Potential restrictions on retention clauses in construction contracts. The government is considering either banning such clauses or requiring retained sums to be ringfenced.

Why it Matters?

For large businesses, this is a clear signal to review internal payment processes, strengthen reporting practices, and prepare for increased regulatory scrutiny. If implemented, these changes will raise the stakes for companies that have traditionally deprioritised supplier payments. Contractual terms will need to be reviewed and revised, reporting systems will need updating, and internal governance will become increasingly important.

For SMEs, it could mean faster payments, greater cash flow certainty, and improved accountability from large customers. A system that enforces timely payment, deters exploitative practices, and provides access to dispute resolution and compensation could significantly improve financial stability and reduce the need to “chase” larger clients.

Watch this Space

With political consensus behind the need for reform, we expect legislative changes to follow quickly once the consultation closes. We will be keeping a close eye on developments and sharing further insights on what these changes mean in practice.

If your business has concerns about how these proposals could affect you, please contact Jack Turkington (Trainee Solicitor), Dawn McKnight or a member of our Commercial team.

*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.