The UK’s New Late Payment Rules: What London SMEs Need to Do
Late Payment is the single biggest cash-flow problem facing small and medium-sized businesses in the UK. The government has recently confirmed a significant overhaul of the late payment law in over 25 years, and the changes will affect every commercial contract your business signs from 2026 onwards.
What is changing, and why it matters
On 24 March 2026, the government published its response to the Late Payment Consultation: Time to Pay Up, and confirmed that it intends to legislate “as soon as Parliamentary time allows”. The package gives the UK what the government describes as the strongest legal framework on late payments in the G7.
60-day cap on payment terms
Large businesses will no longer be able to impose payment terms of more than 60 days on smaller suppliers. Terms longer than 60 days will be unenforceable. This closes the loophole that has, for years, allowed larger customers to dictate 90 or 120 day terms to SME suppliers who had little real ability to negotiate.
Mandatory statutory interest of 8% above the base rate
Statutory interest at 8% above the Bank of England base rate will become a mandatory feature of every commercial contract. Crucially, the parties will no longer be able to contract out of it. Any clause that purports to waive or reduce statutory interest will be void.
The right to charge statutory interest already exists under the Late Payment of Commercial Debts (Interest) Act 1998, but in practice most contracts replace it with a far lower rate. Under the new regime, that workaround disappears.
A 30-day window to dispute an invoice
Customers will have just 30 days from receipt of an invoice to raise a dispute. Miss that window, and the invoice is deemed accepted and full payment, plus accrued statutory interest, becomes due.
This is one of the most powerful changes for suppliers. It ends the common tactic of manufacturing a dispute weeks or months after the event to reset the payment period.
Small Businesss Commissioner
The Small Business Commissioner (SBC) will gain new powers to investigate poor payment practices, adjudicate disputes between businesses, and impose binding financial penalties on persistent late payers. A new low-cost adjudication route will be available for small businesses with less than 50 staff members, which is introduced as an alternative to litigation.
When will the new rules come into effect?
The reforms require both primary legislation (a new Act of Parliament) and secondary legislation setting out the detailed rules. It is expected to be implemented by late 2026 and 2027.
What this means if you are a creditor
For businesses chasing unpaid invoices and that are located in Park Royal, London, and across the UK, the new framework may assist.
Right now, under the existing 1998 Act, businesses can:
Charge interest of 8% above the Bank of England base rate on overdue invoices
Claim fixed compensation per late invoice
Recover reasonable costs of debt recovery
Bring a claim for unpaid interest at any time within six years of the invoice falling due
Most SMEs either do not know about these rights or fail to enforce them. Introducing a clearly worded statutory interest clause into the terms of business, sending invoices promptly, and chasing from day one after the due date can help avoid any delays.
What this means if you are the debtor
If a business owes money to suppliers, the new regime carries risk.
It is advisable that businesses now audit their supplier payment terms now. Any contract with a smaller supplier that has payment terms longer than 60 days will need to be brought into line.
If there is a dispute over an invoice, raise it immediately. Once the 30-day window applies, missing it means the invoice is deemed accepted.
Five practical steps to take now:
Review your standard terms of business
Audit existing contracts for long payment terms
Tighten your invoicing and credit control process
Decide your dispute resolution route in advance
Train people who deal with invoices and implement a credit control system.
How Lyon Croft Law can help
We act for SMEs across Park Royal, Brent, and West London on the full spectrum of commercial and contract work. On late payment specifically, we offer:
Fixed-fee terms of business review, which includes a full review and redraft of your standard customer terms;
Supplier contract audits for businesses concerned about exposure;
Debt recovery and statutory interest claims, from pre-action to issuing proceedings; and
Commercial dispute resolution, including mediation and litigation.
If late payment is hurting your business, or if you want to make sure your contracts are ready for the new rules before they take effect, get in touch.
This article has been authored by Abdullah Suker.
Lyon Croft Law Commercial Solicitors, Park Royal, London [020 3576 7170] [info@lyoncroft.co.uk]
