UK Government pushes for 60 day payment terms - tackling late payments and supporting SMEs
Cash flow is the lifeblood of any business. Without steady income, companies struggle to purchase supplies, pay employees, invest in growth, or even keep the lights on. For Small and Medium-sized Enterprises (SMEs), where financial buffers are often thin, late and delayed payments can be devastating.
To address this, the UK government is proposing a major shake-up of late payment regulations by introducing a legally enforced 60 day payment terms across all business transactions. The move aims to curb widespread late payment practices that cost the UK economy an estimated £11 billion annually and force the closure of 38 businesses every single day.
New legal standards: 60 day payment terms across the board
Under the proposed changes, UK legislation will amend the Late Payment of Commercial Debts (Interest) Act 1998, removing the current flexibility that allows businesses to agree to payment terms beyond 60 days—unless such terms are not deemed “grossly unfair.” This loophole has often been used by larger companies to delay payments without any consequences.
The new rule would set 60 day payment terms as the maximum legal standard between UK businesses. Non-compliance would trigger enforcement measures, including penalties and greater scrutiny by audit committees. The government has also floated a longer-term goal: potentially reducing the limit further to 45 days within five years, subject to further consultation.
UK SMEs hit hardest by delayed payments
Late payment continues to be a massive hurdle for SMEs. According to data from Sage, 40% of invoices using trade credit were paid late in 2020. By 2022, the average amount owed to small and micro businesses in overdue payments was around £22,000.
Government data also reveals that 12% of large companies take longer than 60 days to settle invoices from SME suppliers. Despite voluntary frameworks like the Prompt Payment Code recommending payment within 30 days, compliance has been inconsistent at best.
60 day payment terms – stronger enforcement through the Small Business Commissioner
To ensure that the 60 payment terms rule is taken seriously, the government will empower the Small Business Commissioner (SBC) with enforcement capabilities, including the ability to:
- Levy fines on habitual late payers
- Conduct random audits of payment practices
- Enforce a mandatory 30-day invoice verification period
Additionally, large businesses will be required to report on their payment practices at board level. Audit committees will be expected to monitor and evaluate how fairly small suppliers are treated—marking a shift toward real accountability.
60 day payment terms – backed by a £4 Billion SME support package
As part of a broader strategy to support SMEs, the government has launched a £4 billion financial package. This includes £1 billion earmarked for start-ups, 69,000 new loans, and mentoring initiatives to encourage entrepreneurial growth.
Prime Minister’s pledge to end unfair payment practices
Prime Minister Keir Starmer stated: “From builders and electricians to freelance designers and manufacturers, too many hardworking people are being forced to spend precious hours chasing payments instead of doing what they do best—growing their businesses.”
However, despite broad political support, the proposed shift to mandatory 60 payment terms is expected to face resistance during the current three-month consultation period, which remains open until 23 October 2025.
Want to have your say? You can have your say on the Government’s consultation paper
If you are concerned about the impact this new 60 day payment terms ruling might have on you or your business, the RPGCC team are always here and happy to help, contact us, email us on hello@rpgcc.co.uk or call us on 020 7870 9050.
