UK Late Payment Reforms 2026: What Businesses Need to Know

During the King’s Speech 2026, new plans have been confirmed to resolve late payment issues affecting many small and medium sized enterprises (SMEs).

The proposed reforms are designed to improve payment practices across the UK economy.

So, what is changing?

The government says the reforms are aimed at improving cash flow for SMEs and, reducing the number of companies struggling when invoices are paid late.

Under the new proposals, large businesses could face:

• A maximum 60-day payment term for smaller suppliers

• Mandatory interest charges on overdue invoices

• Tougher enforcement and potential fines for repeat late payers

• A ban on the custom of deducting and withholding retention payments under construction contracts

What counts as a “large company”?

The exact definition for this particular bill has not yet been announced. However, UK legislation usually uses the Companies Act thresholds which considers a company “large” if it meets at least two of the following criteria:

• Turnover over £36 million

• Balance sheet total over £18 million

• More than 250 employees

  
  

Why do late payments need resolving?

Late payments remain one of the biggest pressures facing UK SMEs.

Delayed invoices can lead to:

• Cash flow problems

• Difficulty paying staff and suppliers

• Increased borrowing costs

• Reduced ability to invest and grow

For many businesses, getting paid on time is not just an administrative issue.  It directly affects profitability and stability.

What should businesses do now?

Although the legislation is still being developed, businesses should start preparing now by doing the following:

1)      Review Payment Terms

Check supplier and customer agreements to ensure payment terms are realistic and compliant with the proposed rules.

2)      Improve Credit Control

Businesses should tighten invoicing and debtor management processes, including:

• Prompt invoice issuing

• Automated payment reminders

• Clear overdue payment procedures

3)      Monitor Cash Flow

Businesses that rely heavily on long payment cycles may need to reassess cash flow forecasts and working capital planning.

How can we help?

The new rules could affect everything from cash flow forecasting to customer contracts and financial processes.

We can help your business:

• Review payment policies

• Improve credit control systems

• Strengthen cash flow management

• Prepare for future compliance changes

If you would like advice on how the proposed reforms could affect your business, get in touch with our team.