What is the new UK late payment law?
The March 24 announcement sets out the government’s plan to tighten the UK’s rules on late payment, particularly where large companies buy from smaller suppliers. The reform is designed to limit payment terms, make late payment more expensive, and strengthen enforcement. The government’s announcement and consultation response set out the direction clearly.
The existing framework still has room for delay. Under current rules, payment dates in business-to-business transactions must usually be within 60 days, but longer terms can still be agreed if they are not considered grossly unfair. Suppliers can also charge statutory interest, but many do not use that right in practice. Current GOV.UK guidance on late commercial payments and statutory interest explains the current position.
Why is the UK government changing the rules on late payments?
The government says late payment continues to do serious damage to smaller businesses. In the March 24 announcement, it said late payments cost the UK economy £11 billion a year and contribute to 38 business closures every day.
That reflects a problem many finance teams already know well. Payment delays often have less to do with a decision not to pay and more to do with the way work moves through the business: invoices waiting for approval, disputes raised late, missing documents, supplier emails sitting unanswered, or queries being passed around without ownership. The government’s response reflects that broader view by focusing not only on payment terms, but also on disputes, reporting and enforcement.
What are the main changes in the new UK late payment reforms?
A 60-day hard cap on payment terms for large firms paying smaller suppliers
The government says it will remove the current exemption that allows businesses to agree longer terms provided they are not considered grossly unfair. Its consultation response says this would create a hard limit at 60 days. The consultation had proposed reducing that limit to 45 days after five years, but the government now says it does not intend to take that step forward now and may revisit it later.
This goes directly after the extended payment terms that have remained common in parts of the market. For finance leaders, it is the clearest signal yet that long-standing supplier terms and the processes surrounding them will need closer review.
Mandatory statutory interest at 8% above the Bank of England base rate
The government says statutory interest will become mandatory in commercial contracts at 8% above the Bank of England base rate. It also says businesses will no longer be able to contract around that right with an alternative remedy. Bank Rate is currently 3.75%, which means the statutory late-payment rate would currently be 11.75%.
This is an important change because late payment would no longer sit in the grey area where interest is technically available but rarely used. It becomes a more direct financial consequence of delay, which means finance teams will need a clearer way to track exposure and understand when interest applies. The consultation response also says large companies would be required to report the interest they are liable to pay and the interest they have actually paid.
Stronger investigative and enforcement powers for the Small Business Commissioner
The March 24 announcement says the Small Business Commissioner will be given broader powers to investigate poor payment practices, adjudicate payment disputes, and fine the worst offenders, with fines worth tens of millions of pounds for firms that persistently pay late or fail to comply with the new laws. The Commissioner’s own statement confirms that the government response includes an expansion of those powers.
That is a material shift because it gives the late payment regime more force than it has had in the past. Finance leaders should read this as a sign that payment performance is moving closer to an enforcement and governance issue, not just a supplier relationship issue.
A 30-day deadline for raising invoice disputes
The government’s consultation response says it intends to introduce a statutory time limit for raising disputes. The original proposal was a 30-day deadline for businesses to raise a dispute over a good or service with their supplier, but the government says it wants to work through how the measure will operate in detail before finalising it. Businesses that do not raise disputes within the time limit would need to pay compensation to their supplier.
Invoice disputes are one of the most common ways payment gets delayed, yet they are often handled too loosely. In many organisations, disputes are not raised clearly or early; they emerge halfway through the payment cycle, often through scattered emails and unclear ownership. A formal deadline puts pressure on teams to tighten that process.
Tougher scrutiny of businesses that pay suppliers late consistently
The proposal also points toward tougher scrutiny of persistent late payers. The consultation response says boards or audit committees of large UK businesses that have made a significant proportion of their payments late within the reporting period would be required to publish commentary on GOV.UK explaining why performance is poor and what they intend to do to improve it.
For finance leaders, this means late payment is less likely to remain a quiet operational weakness. Once payment performance moves into published commentary, board-level challenge and potential Small Business Commissioner involvement, it becomes harder to dismiss as business as usual.
How are the new late payment reforms different from the current rules?
The UK already has a late payment framework. Under the Late Payment of Commercial Debts (Interest) Act 1998, suppliers can charge statutory interest on overdue commercial debts. GOV.UK guidance says that rate is 8% plus the Bank of England base rate, and suppliers can also claim fixed debt recovery costs.
The issue has been enforcement and behaviour rather than the absence of any legal basis. Suppliers often have the right to claim interest but choose not to, either because they want to protect the customer relationship or because the internal effort is not worth it. Longer payment terms have also remained possible where they can be defended as fair. The March reforms are designed to narrow that room for manoeuvre.
How will the new UK late payment rules affect finance teams?
Payment terms will need much closer oversight across the supplier base
Finance leaders will need a clearer view of where terms currently sit across the supplier base, where they exceed 60 days, and where payment timing regularly drifts beyond what the contract says. In many businesses, the issue is not limited to the contractual term itself, but to the way payment moves in practice.
That means looking beyond standard terms and conditions and examining how invoices are actually approved, disputed and released. A contract may say one thing, while the real payment cycle says another. The consultation response’s focus on maximum terms, disputes and reporting makes that clear.
Late payment becomes a financial exposure that needs to be tracked properly
If statutory interest becomes mandatory, paying late is no longer only an operational failure. It becomes a cost that can accumulate quickly and will need to be tracked properly. At current rates, that means 11.75% interest before any fixed recovery costs are added.
For finance leaders, that raises practical questions about systems, calculations, reporting and ownership. Teams will need to know when interest starts, how exceptions are treated, and where this exposure sits in reporting. The government also intends to require large companies to report both the interest they owe and the interest they actually pay.
Weak dispute handling will be harder to hide behind
A statutory deadline for disputes will expose teams that rely on loose processes. If disputes are raised late, ownership is unclear, or requests for more information happen in stages, payment will still slow down, but with less room to justify the delay.
This is where many businesses will feel the pressure first. A weak dispute process does not always look serious until tighter rules make it visible. The government’s own proposal of a 30-day dispute window shows how directly this reform reaches into day-to-day finance execution.
Payment performance becomes more of a leadership and control issue
Once payment behaviour is tied more closely to enforcement, reporting and fines, it stops being a narrow AP issue. Finance leaders will need to know why payments are late, which suppliers are affected, and where internal friction is causing avoidable delay.
This is part of a broader shift in finance. Areas that were once tolerated as messy but manageable are now moving closer to formal control, visibility and accountability. The proposed requirements for board or audit committee commentary make that change explicit.
Day-to-day operational friction will matter more than policy language
Long payment terms are easy to spot. Internal delay is less obvious. Invoice-copy requests, remittance questions, missing statements, unresolved supplier emails and slow follow-up all affect when payment actually happens. That is why this reform is likely to be felt most sharply in the day-to-day work of finance teams, not just in contract reviews. Payment performance will not improve through policy alone.
5 things finance leaders must do now before the new late payment law is implemented
Review payment terms across the supplier base and identify where risk already sits
Identify where large-business-to-small-supplier arrangements already exceed 60 days, and where the actual payment cycle runs longer than the agreed term. In many cases, the issue is not limited to the contractual term itself. It is the combination of terms, approval cycles, disputes and slow internal handoffs that pushes payment out.
This exercise should include both formal terms and actual behaviour. A term may look compliant on paper while the process around it still creates systematic delay.
Audit the real causes of delay rather than relying on overdue reports alone
Do not stop at an overdue report. Look at where invoices are getting stuck: approvals, missing PO numbers, invoice errors, late disputes, remittance issues or supplier emails that are not being answered quickly enough. The reform package is a reminder that payment performance is shaped as much by process as by policy.
This is where finance transformation becomes a practical priority. Teams that still rely on fragmented inboxes, manual follow-up and disconnected workflows will struggle more under tighter rules than teams that have simplified how payment moves through the business. That does not always mean a major system overhaul. In many cases, it means adopting tools that make approvals clearer, disputes easier to track, and supplier communication easier to manage day to day.
Get ready to calculate statutory interest accurately and consistently
If interest becomes automatic, teams will need a reliable way to work out when it applies, what rate to use, and how to account for it. With Bank Rate at 3.75%, this is not a small administrative detail.
A process that works when interest is optional may not hold up when interest becomes mandatory. Finance leaders should be asking now whether current systems can calculate interest consistently, support reporting, and distinguish between valid exceptions and poor process.
Tighten dispute handling, ownership and response times before the pressure increases
A statutory deadline for disputes will put pressure on any team that relies on informal escalation or unclear ownership. Disputed invoices need to be identified early and moved quickly. The government has not finalised every detail of the dispute window yet, but it has made the direction clear enough for finance teams to act now.
Where teams are still handling disputes through scattered email threads and ad hoc follow-up, there is a strong case for introducing workflows and tools that make ownership, status and next actions much clearer.
Reduce the internal friction that slows payment down after the invoice is sent
For many finance teams, this is where the operational challenge will be most visible. Backlogs in the finance inbox, unowned follow-ups, slow replies to supplier queries, and poor coordination between AP, procurement and operations will matter more under tighter rules.
Finance leaders looking at process simplification should be thinking not just about reporting and compliance, but about the operational layer that sits between invoice and payment. The more manual that layer is, the harder it becomes to stay ahead of shorter terms and tighter dispute windows.
How Paraglide helps businesses get paid faster
For many teams, the hardest part of late payment is handling the volume of work that sits behind it: replies to reminders, invoice-copy requests, statement requests, remittance questions, payment promises, disputed amounts, and the follow-up needed to keep cash moving. Paraglide builds AI agents that automate repetitive inbox work. That includes sending reminders, handling replies to those reminders, following up on payment commitments, and managing incoming invoice-related queries in the finance inbox.
The benefit goes beyond automating reminder emails. It reduces the operational delays that sit between invoice and cash. In a tighter payment environment, finance teams will need simpler, faster processes for moving conversations, approvals and follow-up forward every day.
Final thoughts
The March 24 reforms are aimed at a problem many finance teams have dealt with for years: payment delays that are tolerated for too long and explained away too easily. The policy focus is on large businesses paying smaller suppliers, but the practical impact lands squarely in finance operations.
The more important question now is whether current payment processes are strong enough to cope with shorter terms, mandatory interest, tighter dispute windows and more scrutiny. For most businesses, the answer will depend less on legal interpretation than on how well the team manages the operational work that sits between invoice and payment.