UK Late Payment Law 2026: 60-Day Cap and 8% Interest

Quick answer: New late payment legislation in the UK is on its way but not yet law. The Small Business Protections Bill, introduced in May 2026, would cap payment terms at 60 days when large firms pay smaller suppliers, make statutory interest of 8% over Bank of England base rate mandatory, ban cash retentions in construction and let the Small Business Commissioner fine late payers.

Until the Bill is passed and its provisions are switched on, the Late Payment of Commercial Debts (Interest) Act 1998 still governs late business payments. This guide separates what applies today from what is proposed, shows the numbers on a worked example, and explains how to word your invoices now. You can add late payment terms to any invoice in our UK invoice generator.

Important: This is general information, not legal advice. The Bill may be amended before it becomes law and commencement dates had not been set at the time of writing. Check the latest stage on UK Parliament Bills and guidance on GOV.UK, or speak to a solicitor.

Why the UK is changing late payment legislation

Government research published by the Department for Business and Trade in 2025 estimated that late payments cost the UK economy almost £11 billion a year and that around 14,000 businesses close each year as a result, equivalent to 38 a day. Our roundup of late payment statistics has the source details. After a consultation, the government published its response in March 2026 and announced legislation in the King's Speech, with the Bill introduced to Parliament on 19 May 2026.

What the Small Business Protections Bill proposes

Measure	What is proposed	Today's position
Maximum payment terms	Large businesses paying smaller suppliers limited to 60-day terms, with reports that this could tighten to 45 days after a review period	Terms over 60 days allowed if expressly agreed and not grossly unfair
Statutory interest	8% above base rate becomes mandatory on late payments and cannot be contracted out of	8% above base rate, but a contract can substitute a "substantial remedy"
Construction retentions	Ban on cash retentions withheld from payments	Retentions common; protected by contract terms only
Small Business Commissioner	Powers to investigate, adjudicate disputes and fine persistent late payers	Can review complaints and publish reports, but no fining power
Board accountability	Large company boards to report on payment performance	Large companies report payment practices twice a year under existing regulations

The measures above are based on the government's published proposals and reporting on the Bill. Detail, such as how "large" and "smaller" businesses are defined, will be in the final text.

When will the new UK late payment law apply?

A Bill must pass all stages in both Houses and receive Royal Assent, and many provisions then need regulations or a commencement order. At the time of writing no commencement date had been announced. Commentators expected implementation from 2027 at the earliest. Plan on the current rules applying for the rest of 2026, and treat any article that says the 60-day cap is "now law" with caution.

What UK late payment law says today

The Late Payment of Commercial Debts (Interest) Act 1998, as amended by the 2013 regulations that implemented the EU Late Payment Directive, gives businesses three rights when another business pays late:

1. Statutory interest at 8% above the Bank of England reference rate, as simple interest from the day after the due date.
2. Fixed compensation per invoice: £40 for debts under £1,000, £70 for £1,000 to £9,999.99, and £100 for £10,000 or more.
3. Reasonable recovery costs above the fixed sum, where you can show them.

If no payment date is agreed, payment is due 30 days after the later of delivery or receipt of the invoice. Public authorities must pay within 30 days. The full method, including the reference rate dates, is in our guide to statutory late payment interest.

Other UK payment rules that already apply

The Bill builds on several measures that are already in force. If you supply larger organisations, these give you useful information and leverage today.

Payment practices reporting

Since 2017, large companies and LLPs have had to publish a report on their payment practices every six months on a government website, under the Reporting on Payment Practices and Performance Regulations 2017. Reports show average days to pay, the share of invoices paid within 30 days, 31 to 60 days and over 60 days, and standard payment terms. Amendments that took effect in 2025 added further metrics, including the share of payments delayed by disputes and, for qualifying construction contracts, information about retentions. Before you agree terms with a large customer, look up its reports: they tell you how it really pays.

Public sector contracts

Public authorities must generally pay undisputed invoices within 30 days. Under the Procurement Act 2023, which came into force in February 2025, 30-day payment terms are implied into public contracts and are meant to flow down to subcontracts in the supply chain. If you are a subcontractor on a public project and your main contractor pays slower, raise it with the contractor first and then with the contracting authority.

The Small Business Commissioner today

The Office of the Small Business Commissioner can already consider complaints from small businesses about payment issues with larger firms, publish its findings and promote fair payment practice. What it cannot do yet is impose fines or binding decisions; that is what the Bill would add. Even now, the threat of a published report can prompt a large customer to pay.

Who the 60-day payment terms cap would affect

• Large buyers with standard 75, 90 or 120-day terms would need to shorten them for smaller suppliers.
• Small suppliers, sole traders and freelancers billing large companies would benefit most. If you invoice as a sole trader in the UK, the rights apply to you too.
• Construction subcontractors would gain from the cash retention ban, alongside existing rights under the Construction Act.
• Consumers are not covered. Late payment interest law applies to business-to-business debts only.

For construction, the retention ban is the biggest change. Main contractors commonly hold back a percentage of each payment, often released only after practical completion and a defects period. On a £200,000 subcontract with a 5% retention, that is £10,000 of earned money held for months or years, and it can be lost entirely if the main contractor becomes insolvent. A ban on cash retentions would remove that exposure, although contracts may move to alternatives such as retention bonds. If you work in construction, our construction invoice guide explains how retainage appears on progress invoices today.

Worked example: a £12,000 invoice paid 20 days late

You supply a large retailer and invoice £12,000.00 including VAT. For illustration, assume the reference base rate is 3.75%, making the statutory rate 11.75%. Always check the actual reference rate for your debt.

Step	Calculation	Result
Annual interest	£12,000.00 x 11.75%	£1,410.00
Daily interest	£1,410.00 / 365	£3.86
Interest for 20 days late	£3.863 x 20	£77.26
Fixed compensation (£10,000+)	Statutory sum	£100.00
Total claimable	£77.26 + £100.00	£177.26

Today: if your contract says 90-day terms, the clock starts after day 90, and a contract could replace statutory interest with a lower but "substantial" remedy. Under the Bill as proposed: a large customer could not impose terms beyond 60 days on you, and the 8% statutory interest could not be contracted away.

How to prepare your invoices and contracts now

1. Agree terms in writing. Put the payment period in your contract and on every invoice. See invoice payment terms explained.
2. Show a real due date, not just "Net 30".
3. Reserve your statutory rights with a line such as "We reserve the right to claim interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998."
4. Check purchase orders. Large buyers often issue terms through their PO; read them before you accept.
5. Keep evidence of delivery and invoice receipt dates, since they set when interest starts.
6. Escalate in order: reminder, phone call, statement of interest, final notice. Our overdue invoice playbook sets out a timeline.

Common mistakes UK suppliers make

• Assuming the 60-day cap already applies to contracts signed today.
• Charging statutory interest to consumers, which the Act does not allow.
• Calculating interest from the invoice date instead of the day after the due date.
• Using the base rate on the day of calculation instead of the six-monthly reference rate.
• Adding VAT to interest or compensation; neither is subject to VAT.
• Forgetting the compensation is per invoice, not per customer.

Checklist for UK suppliers in 2026

• Contract states payment terms and late payment rights.
• Invoices show the issue date, due date and statutory interest reservation.
• You know your customer's size and whether the future cap may apply.
• Construction firms have reviewed retention clauses.
• You are tracking the Bill on the Parliament website.
• You know how to contact the Small Business Commissioner if a large customer pays late.

Next step: put your late payment terms on every invoice

Open the UK invoice generator, set a clear due date and add your late payment wording in the notes. If a customer is already late, work out what you can claim with our step-by-step guide to calculating statutory interest, then follow up with our payment reminder email templates.