Package of stronger new laws to tackle overdue payments

The government has issued its response to the 2025 late payment consultation, Time to pay up, which requested comments on a package of proposed legislative measures to tackle late payments to small businesses.

The government intends to introduce the following legislative measures when Parliamentary scheduling permits:

• Maximum payment terms: Payments terms between businesses will be capped at 60 days, with exceptions for large-company contracts, where the buyer is smaller, and for imports/exports of goods/services. Previously a 45-day limit was proposed but this is not being taken forward currently.
• Mandatory statutory interest: All commercial agreements must include a right to statutory interest at 8% above the Bank of England base rate, and parties will not be able to agree alternative remedies instead of this.
• Deadline for disputing invoices: A statutory time limit (to be specified) will apply for raising disputes, with compensation payable to suppliers for non‑compliance. Construction contracts will be covered by a different regime.
• Additional reporting on mandatory interest: All large companies must declare the interest payments they make as well as comparisons between amounts owed and amounts actually paid. It is envisaged that the declaration will be done through the Government’s Payment Practices and Performance Reporting System.
• Board-level scrutiny of payment practices: Large UK companies with poor payment performance within a reporting period are required to have their boards or audit committees publish a statement on GOV.UK explaining how they will improve their inadequate payment practices.
• Financial penalties for persistent late payers: Large companies that repeatedly pay their suppliers late or breach late‑payment rules may face significant fines.
• Additional powers for the Small Business Commissioner (SBC): The SBC will have new controls to investigate offenders, resolve payment disputes outside of court procedures, and issue fines and penalties.
• Construction contracts – prohibiting retention payments: Deduction and withholding of retention payments under construction contracts will be banned, although this is still subject to consultation as to how this change will be implemented.

The proposals demonstrate the government’s pledge to address overdue payments, highlighting their economic impact and effects on small businesses. The introduction of mandatory statutory interest in contracts and removing the ability to agree an alternative contractual remedy (4% above base is very common) marks a significant though arguably welcome change.

Many businesses will need to update their payment terms and invoicing processes before the changes come in and if you need any help with that, please get in touch with Roanna Landor at roanna.landor@fsp-law.com or please contact our Commercial, IP & Technology Team.