60-day invoice payment deadline from 2027
Jacob Grattage, Reporter, Business & Accountancy Daily
Government plans mandatory 60-day limit on payment of invoices to SMEs with fines and companies charged 8% plus base rate interest on late payments
The new rules will come into force from April 2027 at the earliest, with the government saying it is determined to ‘hold big businesses and persistent offenders to account’.
A major shakeup of late payment rules will impose maximum payment terms of 60 days on invoices to SMEs and interest will be charged on all late payments at 8% above the Bank of England base rate, so 11.75% under the current rate.
Legislation will be introduced ‘as soon as parliamentary time allows’, the government said, with more details to be expected in the King’s Speech.
This will affect large businesses with turnover above £54m, balance sheet threshold above £27m and/or 250 employees under The Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024.
As part of the proposals, the Small Business Commissioner will be given powers to ‘investigate poor payment practices, adjudicate payment disputes, and fine the worst offenders, with fines worth tens of millions for those that persistently pay late or fail to comply’.
Despite changes to late payments being discussed for years and various voluntary codes of practice, there has not been any legislation since the Late Payment of Commercial Debt Act in 1998.
There is not yet a date for the new cap to come into force with the Department for Business and Trade (DBT) only stating: ‘The policies are expected to come into effect no earlier than financial year 2027-28.’
In a letter to the CEOs and chief financial officers of the largest UK companies, Blair McDougall, business and trade minister, said: ‘Late payments cost the UK economy £11bn each year and lead to the closure of 38 UK businesses every day.
‘Across the UK, businesses currently spend a 133 million hours per year chasing late payments – hurting their cash flow, preventing their growth, and endangering their survival.
‘This is not right. It damages the economy and is unfair to small businesses and the selfemployed.
‘We are going to fix this problem. It’s time for the UK’s small businesses to be paid on time.’
The DBT impact assessment says the measures will cost businesses £143.28m a year, and will include a 60-day cap on payment terms on all large firms when paying smaller suppliers, and mandatory interest on late payments with a requirement for all commercial contracts to include statutory interest set at 8% above the Bank of England base rate.
In terms of penalties, if a business is owed £10,000 and is paid 60 days later than the agreed payment date, under the new rules they will be owed £10,293.15, including interest and also £100 compensation.
There will also be tougher accountability with boards and audit committees of any persistently late-paying large company required ‘to publish commentary on why payment performance is poor and what actions they are taking to fix this’, McDougal stressed.
Tina McKenzie, policy chair, Federation of Small Businesses said: ‘For the first time, audit committees and boards will question and challenge poor payment performance, publish it in annual reports for all to see, and put it right.
‘Paying in 60 days is not prompt – but strengthening that as the absolute maximum cap after years of dithering is a good step towards encouraging payments in 30 days across all supply chains.’
The proposed legislation will also ban the withholding of retention payments under the terms of construction contracts with ongoing consultation over this change.
There will be some exemptions, McDougall added: ‘We intend to allow strictly limited exemptions from maximum payment terms when both parties are large companies, when the purchaser is the smaller party, or when the goods or services are being either imported or exported.’
The focused nature of the proposals was welcomed, with the rules set to affect only ‘large businesses’.
Glenn Collins, head of technical and strategic engagement at ACCA said: ‘ACCA would like to see these important changes introduced as soon as possible, especially given the tough economic climate small businesses are currently facing.
‘But we do recognise that these changes will require primary legislation – and that parliamentary process takes time. Equally importantly large corporates will need to need to adjust purchase to pay systems and that too can’t happen overnight.’
