The UK government is preparing new legislation that could require companies to pay supplier invoices within 60 days or face penalties. The proposed rules are designed to tackle late payment issues that continue to put pressure on small businesses across the country.
At present, paying within 60 days is encouraged under the Prompt Payment Code, but the new plans would make this a legal requirement rather than a voluntary standard.
Under the proposals, companies that fail to pay on time could be forced to pay interest on overdue invoices at 8% above the Bank of England base rate. The Small Business Commissioner is also expected to receive stronger powers, including the ability to issue penalties.
The government has said that late payments cost the UK economy around £11 billion each year. Delayed payments can create serious cash flow problems for small businesses, making it harder to cover wages, operating costs and supplier commitments.
The proposed legislation is expected to be included in the King’s Speech in May. If introduced, boards would also need to disclose payment terms in audit reports and explain what action they are taking to improve payment performance.
There are expected to be some exceptions, including certain transactions between large businesses, cases where the buyer is a smaller business and some import or export arrangements.
Business groups have broadly welcomed the move. The Federation of Small Businesses has long argued that many small firms do not feel able to charge interest on late payments for fear of damaging commercial relationships. The CBI has also backed the direction of travel, saying the proposed rules appear to strike a sensible balance between supporting smaller firms and protecting competitiveness.
The issue of late payment has remained a major concern for years. Some large businesses have already reported long average payment times, with certain household names taking well over 60 days to settle invoices. For smaller suppliers, that kind of delay can create avoidable financial strain and in some cases push firms towards borrowing just to stay operational.
What this could mean for Amanah clients
For Amanah clients, these proposals could have real practical implications.
If you are a small business that regularly waits a long time to be paid, these changes could offer stronger protection and improve cash flow over time. A firmer legal framework may also make it easier to challenge poor payment practices without feeling that you are acting outside normal commercial expectations.
If you run a larger business, or one that works with a wide supplier network, this is a sign to review your payment processes now. Businesses may need to tighten internal approval systems, improve invoice handling and make sure supplier terms are realistic and compliant.
This is also a reminder that cash flow management remains critical on both sides of the transaction. Even before any law changes, businesses should be clear on payment terms, monitor aged creditors and debtors closely and avoid letting poor processes create unnecessary financial pressure.
For companies preparing for growth, external finance or stronger supplier relationships, payment performance is no longer just an admin issue. It is increasingly becoming part of how financial discipline and business credibility are judged.
Final thought
The proposed 60-day payment rule is aimed at addressing a long-standing problem for smaller businesses. While it is not yet in force, it signals a clear direction from government. Businesses that prepare early will be in a better position to stay compliant, protect cash flow and maintain stronger relationships with suppliers.
Disclaimer: This content is for general information only and does not constitute legal or financial advice. Always consult a professional for guidance tailored to your specific circumstances.