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Late Payments Revolution: No More Excuses - The End of "Strategic" Late Payments is here
As the UK prepares for the most significant shift in commercial debt legislation in decades, David Hulbert, the recently appointed Head of Dispute Resolution at Leonard Curtis Legal, explores the practical implications of the 2026 late payment reforms.
David examines how these changes will fundamentally alter standard contractual payment terms.
The UK government has finally lost patience with large businesses treating suppliers as banks, concluding their consultation “Late payments: tacking poor payment practices” in October 2025.
But don’t mistake the consultation timeline for a distant threat—the government’s formal response to the consultation is due on 15th January 2026. The government is expected to move quickly to make amendments to the Late Payment of Commercial Debts (Interest) Act 1998 with Royal assent possibly taking place by late 2026.
This isn’t tinkering at the edges. This is the most significant overhaul of commercial payment practices in a generation with the intention of protecting SME businesses from business failure by making prompt payment a legal obligation protecting small businesses' cash flow and ensuring fair treatment across supply chains.
Contracts Won’t Save You
Many businesses have not grasped that the proposed changes will make it significantly harder—potentially impossible—to contract out of statutory late payment interest obligations.
Currently, the Late Payment of Commercial Debts (Interest) Act 1998 allows parties to agree different payment terms, provided they’re not “grossly unfair”. In practice, this has been exploited ruthlessly. Large businesses impose 60, 90, or even 120-day payment terms during contract negotiation. This essentially renders the statutory interest regime irrelevant because they are technically, paying “on time.”
The new framework will likely render many such contractual terms void. Payment terms exceeding 30 days to small businesses may be presumed grossly unfair unless the large business can justify them. It is expected that the maximum payment term will be no more than 60 days. Where longer terms are agreed, statutory interest will start running from the 30-day point, not the contractually agreed date.
For businesses that have built cash management strategies around extended payment terms, this changes everything. That 90-day payment clause you’ve relied on for years? It may be worth nothing when the new regime bites.
The Dispute Notification Bombshell
Perhaps the most underestimated change involves mandatory dispute notification requirements. The days of foot dragging and of losing the invoice to preserve cash flow are officially numbered.
The proposed rules will require large businesses to notify suppliers within a specified timeframe (likely 30 days) if they dispute an invoice, with specific reasons for the dispute.
Miss that deadline, and you lose the right to dispute—the invoice becomes due and statutory interest starts running.
Disputes must be genuine, specific, and documented. Vague assertions won’t suffice. You’ll need evidence, and that evidence will likely need to be disclosed if the dispute proceeds to the Small Business Commissioner or court.
Small Business protections
Maximum 60-day payment terms:
The expectation is that the new legislation will create a hard cap on how long a business can take to pay an invoice. This is expected to impact all businesses not just transactions between large and small businesses.
Supply Chain Finance Protections: Explicit consent is likely to be required for early payment schemes. These schemes have resulted in SMEs being obliged to pay a fee or a discount for the privilege of receiving prompt payment. Refusing participation cannot result in commercial detriment. Discount rates must be commercially reasonable and transparent.
Right to Challenge Unfair Terms: Contractual payment terms can be challenged as void if grossly unfair, with the burden of proof shifting to large businesses.
Mandatory statutory interest:
This is likely to remove the ability for companies to contract out of paying the statutory interest (8% above the Bank of England base rate).
Large Business: Nowhere to Hide
There will be a requirement to report things such as:
- Median payment times by supplier category
- Total statutory interest owed and paid
- Percentage of invoices paid late
- Number and value of disputed invoices
- Payment performance specifically to SMEs
This data will be public, searchable, and comparable. Institutional investors are already incorporating payment metrics into ESG analysis.
The Sanctions:
Public Procurement Exclusion: The Public Procurement Exclusion is a "hard-stop" enforcement mechanism that bars companies from bidding on major government contracts if they cannot prove a history of prompt payment. This already took full effect on October 1, 2025.
Direct Financial Penalties: The Commissioner can impose fines calculated on turnover without court proceedings.
Director Liability: Directors could face Personal disqualification or financial penalties for presiding over systematic late payment.
Reputational Damage: Public reporting affects share prices, credit ratings, supplier relationships, and customer perception.
Enhanced Legal Remedies: Full debt recovery costs, potentially including legal fees on an indemnity basis.
The incoming regulations will require revision of all Standard Terms and Conditions. There are more questions than answers at this stage; how will the law define the receipt of an invoice, or the formal confirmation of a 'disputed' invoice? Proactive process review is essential to navigate these blurred lines, mitigate enforcement risks, and ensure legal compliance once the new regime is enacted.
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