The late payment reforms coming to the UK (and what to do before they land)

Late payment is costing the UK economy around £11 billion a year. Thirty-eight small businesses close every day because of it. On 24 March 2026, the government announced what it called the strongest crackdown on late payment in over a generation. Business Secretary Peter Kyle framed the problem bluntly: "Far too many businesses are forced to shut down because they have not been paid. That is simply unacceptable."

The announcement followed a consultation that ran from July to October 2025, titled "Late payments: tackling poor payment practices". The government has now published its full response and committed to introducing legislation "as soon as Parliamentary time allows". Officials have indicated the measures are unlikely to take effect before 2027, with a transition period to follow.

For UK freelancers, sole traders and small businesses, this matters in two directions. First, it changes what you can expect from clients once the law lands. Second, it changes what you should be doing now, in the gap between announcement and enforcement.

Here is what is confirmed, what was dropped, what is still being decided, and the practical move while we wait.

What is confirmed

A 60-day hard cap on payment terms, large to small. The headline measure. When a larger business buys from a smaller one, the longest payment term it can impose by contract is 60 days. "Net 90" and "net 120" terms, which have crept into certain sectors over the last decade, become unlawful in those relationships. Limited exemptions will exist, but the direction is clear.

Mandatory statutory interest, with no opt-out. The right to charge 8 percent above the Bank of England base rate on a late B2B invoice has existed since 1998, under the Late Payment of Commercial Debts (Interest) Act. The problem is that larger buyers have routinely contracted it away in their standard terms. Under the new framework, parties will no longer be able to contract out. The right to charge statutory interest becomes a statutory floor, not a default that can be negotiated away.

New powers for the Small Business Commissioner. The office of the Small Business Commissioner, created in 2016, has had limited enforcement teeth. Under the reforms:

• The Commissioner gains an Adjudication function to settle late payment disputes out of court.
• The Commissioner can investigate formal complaints about overdue payments, with expanded investigative authority.
• The Commissioner can impose financial penalties on persistent late payers, calculated as a percentage of turnover.

Emma Jones, the current Small Business Commissioner, said: "I am on a mission to make life easier for small firms by getting money moving faster through the economy by tackling late payments." Her office is likely to be the first port of call for disputes once the law lands.

Mandatory reporting on interest owed versus interest paid. Large companies will have to publish how much statutory interest they have incurred and how much they have actually paid. Audit committees and boards of persistent late payers will have to explain poor payment performance in their annual reports. This is the transparency measure. The quiet discipline of the FTSE-350 is not wanting to admit, in a shareholder document, that you are the kind of company that stiffs its suppliers.

The government has described the overall framework as "the strongest legal framework on late payments in the G7". Tina McKenzie, Policy Chair at the Federation of Small Businesses, called it "the toughest legislation in the G7".

What was dropped

A future reduction to 45 days. The consultation floated the idea that the 60-day cap would ratchet down to 45 days after five years. The government's response confirmed it is not implementing this now, though officials noted they "may revisit this option down the line". If you are planning cash flow five years out, assume 60 days remains the ceiling.

What is still being decided

A statutory deadline for disputing invoices. The original proposal was 30 days, so that a client cannot sit on an invoice for 90 days and then raise a dispute as a reason not to pay. The government has decided a dispute deadline is in principle a good idea but has not set a specific timeframe. This is the single most useful line in the proposals for freelancers, because invoice disputes raised at week 10 are the most common delay tactic. Expect further consultation.

A ban on retention payments in construction contracts. Retention is the practice of holding back a percentage of a construction contract until long after practical completion, often to the point where small subcontractors are financing the main contractor's cash flow. The reforms propose banning retention in construction contracts, subject to further industry consultation. This is a construction-specific measure, but worth watching if any of your clients are in that sector.

When this becomes law

The honest answer: not soon. The government has committed to introducing legislation "as soon as Parliamentary time allows". The expectation across the legal commentary is that measures are unlikely to take effect before 2027, with a transition period after that.

That gives us roughly 12 to 18 months before the first measures bite. In that gap, three things matter.

What to do now

One: assume the law exists already. Statutory interest at 8 percent plus the Bank of England base rate (currently 12 percent) already exists in UK law and has done since 1998. You can charge it on every B2B invoice that goes past due. The reforms will remove the contracting-out loophole, but the floor is already there, right now. Our late payment interest calculator gives you the exact figure in under a minute.

Two: tighten your own terms. Review your standard invoice terms. If you have been issuing "net 30" to large clients who routinely take 90, start explicitly citing the Late Payment of Commercial Debts (Interest) Act 1998 in your terms of business. Note that you will charge statutory interest and compensation. This is already enforceable. The announcement gives you the framing to raise it in commercial conversations.

Three: build the paper trail. If a client is a persistent late payer, keep every invoice, reminder and acknowledgment. When the Small Business Commissioner's investigative powers come live, the first wave of complaints will be won on documentation. Businesses with months of patient records of chasing will have a much easier time than those with a shoebox of PDFs.

The reforms are coming. The question is whether you have been running your business as though they were already here. The ones who have will barely notice when the law changes. The ones who have not will find themselves rebuilding their payment hygiene under statutory pressure instead of on their own terms.

If you want to start today, use our late payment interest calculator. It applies the current base rate automatically and gives you the figure to put on your next overdue invoice. Free, no signup, works in a minute.

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Sources and further reading:

• HM Government, "Late payments: tackling poor payment practices" (consultation document, 2025)
• HM Government, consultation response (March 2026)
• Office of the Small Business Commissioner, announcement 24 March 2026
• Federation of Small Businesses, policy response

The proposals set out above are not yet law. The government has committed to introduce legislation "as soon as Parliamentary time allows". This article will be updated when the Bill is introduced in Parliament and again when the measures take effect.