The UK Government’s Backing Your Business plan (CP1358, July 2025) proposes some of the most significant reforms in over 25 years to tackle late payments and long payment terms. For small and medium-sized enterprises (SMEs), these reforms matter as delayed payments often create serious cash flow pressures and restrict growth.

Currently, many SMEs simply tolerate late payment disputes. On average, they face three legal issues per year, yet only seek professional advice 25% of the time. The civil justice system is often seen as slow and costly, small firms and the self-employed end up spending valuable time chasing invoices instead of building their businesses.

What’s changing?

The plan seeks to reform the landscape by strengthening large company reporting requirements and introducing a new Fair Payment Code to replace the Prompt Payment Code to help businesses get paid on time. The new Code will showcase companies committed to paying suppliers promptly and fairly. In addition, all large companies will be required to include payment performance reporting in their annual reports.

Key proposals include:

• A 60-day maximum payment term;

• A 30-day deadline to dispute invoices, after which statutory interest applies;

• Mandatory interest on late payments, with no contracting out;

• Fines against persistent late payers;

• Barring persistent late payers from government contracts;

• Requiring large companies to report the level of on statutory interest they owe upon late payments;

• Greater board-level accountability for payment practices;

• Enhanced powers for the Small Business Commissioner; and

• Possible reforms to retention clauses in construction contracts.

Impacts

These changes will reshape how contracts are drafted and negotiated. Standard terms permitting longer payment cycles or excluding late-payment interest may become unenforceable. Businesses will need to revisit dispute resolution clauses, invoicing, and payment mechanisms to ensure compliance with the new plan.

Large companies will soon be required to include payment performance in their annual reports, meaning that directors, and in some cases audit committees, will be directly accountable for how quickly their businesses pay suppliers. Non-compliance could bring reputational damage, financial penalties, or even regulatory consequences. From a commercial perspective, this is a significant shift.

We can help by:

• Advising on payment disclosure obligations and how to meet them;

• Supporting risk management through clearer contract drafting and compliance processes; and

• Highlighting how supplier payment practices could link to wider ESG reporting and governance responsibilities.

Next steps

The consultation runs until October 2025, with legislation expected to transform the UK’s payment framework for years to come.

Now is the time to review existing contracts. Our Commercial Team can help you manage risks, update existing contract terms, and implement practical solutions tailored to your business. Should you need any immediate assistance with late payments or contract disputes, our Litigation Team is here to help.\

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