60 → 45 day payment terms is coming – is your business ready?

For years, UK businesses have struggled with the knock-on effects of late payments. The government estimates that late payments cost the UK economy £11 billion annually, affecting over 1.5 million businesses, and contributing to roughly 38 business failures per day.  As the government’s “Late Payments: Tackling Poor Payment Practices” consultation draws to a close on 23 October 2025, it’s clear that what’s emerging is one of the most significant UK late payment reforms in a generation – and that businesses need to start preparing now.

The Proposal

The government’s proposed UK late payment reform framework aims to create a culture of prompt payment and accountability. The key measures under discussion include:

• Hard cap on payment terms:
  B2B contracts will be limited to 60 days, with a glide path toward 45 days within five years.
• 30-day dispute deadline:
  Businesses will have 30 days to raise any invoice disputes — after that, payment must be made on time.
• Mandatory statutory interest:
  Late payments will automatically accrue interest at Bank Rate + 8%, with no discretion to waive it.
• Enhanced transparency:
  Companies will be required to report statutory interest owed and paid, making the true cost of lateness visible to all stakeholders.
• New enforcement powers:
  The Small Business Commissioner (SBC) will be given authority to investigate and fine repeat offenders.

Public Procurement: Payment Performance as a Gatekeeper

From 1 October 2025, suppliers seeking central government contracts will face tougher entry requirements. Bidders must demonstrate:

• Average payment terms of 45 days or less, and
• At least 95% of invoices paid within 60 days (or 90% with a credible action plan).

This will be assessed at the selection stage, meaning poor payment performance could disqualify bids before they’re even reviewed.

What UK Late Payment Reform Means for Finance & Procurement Teams

The reforms are more than just compliance — they’ll reshape financial operations across the UK. Here’s what to expect:

1. Days Payable Outstanding Will Compress: With a hard 60-day cap — and 45 days on the horizon — cash will flow out earlier. That means re-forecasting liquidity, updating working capital models, and revisiting covenant headroom now, not later.

2. Disputes Will Be on the Clock: A new 30-day dispute deadline means delays won’t buy time. If you don’t raise a genuine dispute within 30 days, payment must be made — and statutory interest starts accruing the day after the due date. This makes clear SLAs and invoice verification workflows essential.

3. The Cost of Lateness Goes Public: With mandatory interest and public reporting, late payments will no longer stay in the shadows. Lenders, investors and even the media will have visibility — increasing reputational and financial pressure to comply.

4. Board-Level Oversight Will Rise: Audit committees will need to scrutinise payment practices as part of governance. The SBC could be granted assurance and spot-check powers, with penalties for firms that consistently pay late (a potential 25% late-payment trigger is under discussion).

5. Reporting Will Get Tougher: Updated Duty to Report guidance (Sept 2025) introduces more granular metrics — including the value of invoices paid late, percentage disputed, and construction retentions. You’ll need to align definitions and strengthen internal controls.

Watchpoints: Buying Groups, Rebates & Retrospective Credits

Complex commercial structures will come under closer scrutiny. This includes:

• Extended payment terms through buying groups
• Quarterly rebates or marketing allowances
• Retrospective credits that distort “days to pay” data

Until final guidance is issued, the safest approach is to:

• Measure settlement on the actual cash or clearing date, and
• Treat rebates and credits separately from invoice payments.

A 3-Step Action Plan to Start This Week