UK to cap late payments at 60 days, 8% above base

Small businesses should be paid on time. Today, 24 March 2026, ministers set out what they call the toughest late‑payment reforms in the G7. The package would cap payment terms from large buyers to small suppliers at 60 days, require overdue bills to accrue interest at 8 per cent above the Bank of England base rate, and give the Small Business Commissioner far stronger powers.

Late payment drains an estimated £11 billion a year from the UK economy, according to the government. It also pushes firms to the brink: officials say 38 businesses close each day because they are not paid on time, roughly 266 a week. For tradespeople, freelancers and family firms, that delay hits payroll, rent and tax bills, and the time spent chasing money is time not spent winning work.

If you supply a large company, the changes aim to make life simpler. The Commissioner would be able to investigate poor payment practice, adjudicate disputes and fine persistent offenders, with penalties that could run to tens of millions of pounds. Boards or audit committees at habitual late payers would have to publish explanations for poor performance in annual reports and set out what they will do to fix it, following work with the Federation of Small Businesses.

The 60-day rule is a ceiling, not a target. FSB policy chair Tina McKenzie welcomed a hard stop on long terms while reminding big buyers that 30 days remains the standard many supply chains work towards. You can still agree shorter terms in your contracts; what should change is the ability of larger customers to stretch them to 90 or 120 days.

Statutory interest is the default rate you can claim once a bill is overdue. Under the plans, every commercial contract must include late‑payment interest at 8 per cent above the Bank of England base rate, calculated daily until the invoice is settled, plus fixed‑sum compensation. Because the base rate moves, the exact total will vary.

Here is the government’s worked example. If you are owed £10,000 and your customer pays 60 days after the agreed date, the total due would be £10,293.15. That includes £193.15 in interest plus £100 compensation. To estimate your own case, use invoice amount * annual rate * days late / 365, then add the fixed compensation for that invoice size.

In construction, ministers plan to ban the withholding of retention payments, subject to consultation on how and when to implement. Retentions are sums held back to cover defects. When a main contractor collapses or delays, small firms can lose that money entirely. The intended ban is designed to stop those losses and shorten the wait for cash.

Business Secretary Peter Kyle said too many firms shut because they have not been paid and described the reforms as the strongest in more than 25 years. Small Business Minister Blair McDougall spoke about the personal strain late payment puts on families and employers. Small Business Commissioner Emma Jones said stronger powers would help her office take on persistent late payers and give small suppliers a clearer voice on terms.

The government also pointed to recent progress, stating that the Commissioner recovered three times more overdue invoices in 2025 than in 2024. Officials argue that the wider powers announced today will extend that benefit to more firms. The press notice and supporting research are available on GOV.UK for anyone who wants to read the source material.

What this means for you is practical as well as political. Put clear due dates on invoices, include the statutory interest line, and keep a dated log of reminders so days late are easy to prove. If a large customer resists fair terms or stalls payment, the strengthened route to the Small Business Commissioner should make escalation more effective once the rules are in force. This guide is for learning, not legal advice, so do speak to an adviser before taking action.

If you teach business, law or maths, this is a ready‑made classroom case. Students can calculate daily interest using a current base rate, rewrite a sample contract clause to make payment terms clear, and discuss when charging interest improves behaviour. They can also look up annual reports to see how audit committees discuss supplier payments.

There are still moving parts. Parliament will need to pass legislation. The consultation on construction retentions will decide the timetable. Guidance will be needed on how fines are triggered, what evidence is required in investigations, and how annual report disclosures are checked. One behavioural risk remains: some buyers may treat 60 days as standard even though the aim is prompt payment closer to 30.

Today’s announcement also sits alongside last year’s Small Business Plan, the Business Growth Service and a £4 billion finance package flagged by ministers. The broader message is interventionist, but for most of us the takeaway is simple: shorter terms, clearer contracts and the confidence to claim what you are owed.