The New Late Payment Rules: What Your Finance Function Needs to Change

Here is a question worth putting to your finance team this week. Without going away to build anything, can they produce a list of every overdue sales invoice, showing the correct contractual due date for each, the number of days it is overdue, and the statutory interest that has accrued on it?

In most UK businesses between about £2m and £50m of turnover, the honest answer is no — not because the people are weak, but because nothing has ever required it. Aged debtor reports show invoice dates and ageing buckets. They do not usually show contractual due dates, because those live in contracts rather than in the ledger, and they almost never show accrued interest, because nobody has ever intended to claim it.

The late payment reforms working their way through Parliament will change that. This is a practical guide to what has to be in place, who does the work, and what to do over the next twelve months.

What is changing, in brief

The measures are not yet law. They are expected to arrive mainly through the Commercial Payments Bill, with some elements delivered by secondary legislation, and on current indications the main restrictions will not bite before 2027, with transition arrangements attached. The direction, though, is settled enough to plan against.

Change	What it means in practice	Who it applies to
Statutory interest becomes mandatory	Interest at Bank of England base rate plus 8% can no longer be contracted out of or agreed at a lower rate	All business-to-business contracts
Maximum payment terms	Payment periods beyond 60 days prohibited, with stated exemptions that must be written into the contract or the term is void	Most B2B contracts; exemptions where the purchaser is the smaller party or both are large
Expanded reporting	Twice-yearly payment practices reporting continues, with new disclosure of statutory interest owed and statutory interest actually paid	Large companies and LLPs
Board accountability	Where a significant share of payments are late, the board or audit committee must publish an explanation and a remediation plan	Large companies and LLPs
Enforcement	Small Business Commissioner able to levy civil penalties of up to 1% of annual UK turnover, direct contract changes and require independent reviews	Businesses that are not small
Construction retentions	Retention clauses prohibited, with a two-year transition	Construction contracts

A proposed 45-day cap has been dropped for now, and existing contracts are not caught. Travers Smith’s detailed briefing on the reforms is the clearest public summary of the legal mechanics, and worth reading alongside this if your contracts are complex.

The six operational changes

Strip out the legal commentary and what remains is a finance work programme. Six things need to be true.

1. Contractual due dates have to live in the ledger

This is the foundation and the one most likely to be missing. An invoice date plus default terms is not the same thing as the contractual due date, and in businesses that have grown by winning customers one at a time, terms vary more than anyone remembers: 30 days here, 45 there, 60 for the customer who negotiated hard in 2022, and an undocumented arrangement with the one who always pays late and always has.

The work is unglamorous. Someone reads every live customer contract, extracts the payment terms, records them against the customer record, and sets the system to derive due dates from them rather than from a global default. In a business with a few hundred active customers this is a week or two of concentrated effort, and it is the single highest-value thing you can do before the rules land, because every other obligation depends on the due date being right.

2. A statutory interest calculation that tracks the base rate

Base rate plus eight per cent sounds simple until you notice that the base rate moves. Interest accrues daily from the day after the due date, at the rate applying in the relevant six-month reference period, which means the calculation is a function and not a constant. Most accounting packages will not do this natively; a maintained spreadsheet or a short report built against the ledger will, and either is acceptable provided someone owns it.

Build it now, while it is a management tool, rather than in 2027 when it is a compliance artefact. Knowing what your overdue book would have earned in statutory interest over the past year is a genuinely useful number in its own right — and in my experience it is considerably larger than finance directors expect.

3. A decision process for claiming or waiving

Once interest is mandatory rather than optional in the contract, the commercial decision shifts from whether you may claim it to whether you will. Those are different conversations, and the second one is not a finance decision alone.

Claiming statutory interest from your largest customer is a relationship decision with revenue consequences. Waiving it against a customer who pays late as a matter of policy is a decision to subsidise them. Somebody has to decide, case by case, and the business needs a rule for who — typically finance proposes and the commercial lead or managing director decides, with a documented threshold below which finance simply gets on with it.

4. The same discipline on the purchase side

The reporting obligation runs both ways. A business that pays its own suppliers late accrues statutory interest payable, and for large companies that figure becomes a published number alongside a board explanation. Purchase ledger discipline stops being a cash-management preference and becomes a disclosure item.

This is where most businesses discover that the two sides of the ledger are the same problem. Late payment propagates: research published through the Small Business Commissioner has found that around two-thirds of UK firms have paid their own suppliers late as a direct consequence of being paid late themselves. If your payment performance is largely a function of your collection performance, then fixing the receivable side is how you fix the payable side — and doing the second without the first simply moves the cash squeeze onto your own balance sheet.

5. Reporting readiness, if you are in scope

Large companies and LLPs — broadly those meeting two of turnover above £54m, balance sheet total above £27m, or more than 250 employees — already report payment practices twice yearly. The new elements are the interest figures and, where performance is poor, a board-level narrative with a remediation plan and an account of what was promised last time and not delivered.

That last clause deserves attention. A plan published in one period becomes something you are reported against in the next, which turns the disclosure into a ratchet. Finance functions that treat the first report as a box-ticking exercise will find the second one harder.

6. Construction: retentions

If you operate in construction, the prohibition on retention clauses with a two-year transition is the most consequential change in the package. Cash flow models, contract templates and subcontractor arrangements all assume retentions exist. Rebuilding those assumptions is a finance project of its own, and one that needs a controller who understands applications for payment, certification and the subcontract interface rather than a generalist.

Who actually does this work

Look down that list and the shape of the role is obvious. It is not strategic enough to occupy a finance director, too judgement-laden for a bookkeeper, and too continuous to hand to a year-end accountant who sees the business twice a year. It is financial control: the discipline of making the ledger match reality, month after month.

The task	The right level	Why
Extracting contract terms into the ledger	Management accountant or credit control, supervised	High-volume, rules-based, needs checking rather than judgement
Building the interest calculation	Financial controller	Needs someone who will own it being right
The claim-or-waive framework	Financial controller proposes, MD or commercial lead decides	Commercial consequences beyond finance
Monthly reporting and board narrative	Financial controller, reviewed by FD or CFO	Published figures carry personal and corporate exposure
Contract template changes	Legal, with finance specifying what the ledger needs	The ledger requirement should drive the drafting, not the reverse

For businesses that already employ a controller, this is a new workstream for an existing seat. For the large number of UK businesses in the gap between a finance manager and a full controller, it is a reason to look again at whether the layer is adequately staffed — and the fractional financial controller model exists precisely for businesses that need that seniority for one or two days a week rather than five. Where the function needs rebuilding before it can run, an interim controller for three to six months is usually the cheaper sequence, and an outsourced controller function suits businesses whose problem is steady-state reliability rather than judgement.

A five-question readiness test

Put these to your finance team. The answers tell you how much work is ahead.

1. Can we produce, from the system rather than from memory, the contractual payment terms for our twenty largest customers?
2. Does our aged debtor report run from the contractual due date or from the invoice date plus a default?
3. If a customer disputed an invoice six days before it fell due, would we notice, and would we know what we could charge?
4. What would statutory interest at base plus eight per cent have amounted to across our overdue book in the last twelve months?
5. Who decides whether we claim it — and has that person been asked?

A finance function that answers all five without hesitation is in good shape and needs only to formalise what it already does. One that stumbles on the first two has a data problem that will take months rather than weeks, which is the argument for starting now rather than when the commencement date is announced.

What to do over the next twelve months

A sensible sequence, assuming a 2027 commencement with transition.

Period	Priority
Now to Christmas	Run the five-question test. Quantify the interest exposure across the last twelve months on both sides of the ledger. Establish whether the controller layer exists and is adequately resourced.
Q1	Contract terms extraction into the ledger. This is the long pole and should start first.
Q2	Build and test the interest calculation. Agree the claim-or-waive framework with the commercial side.
Q3	Purchase-side discipline. If in scope for reporting, run a dry-run disclosure against real data.
Q4 onward	Review contract templates with legal once the final rules are published; adjust the new 60-day and exemption drafting.

None of this is wasted if the timetable slips, which is the point. A business that knows its contractual due dates, can calculate what late payment is costing it, and has decided who makes the commercial call is better run whether or not the Bill passes on schedule.

The uncomfortable conclusion

For a well-controlled finance function, the reforms are an administrative addition — a new report, a new calculation, a new conversation with the commercial team. For a function running on invoice dates, default terms and institutional memory, they are a reconstruction project with a deadline attached.

The gap between those two states is not technology and it is not headcount. It is whether anybody owns the ledger being right. Businesses that can name that person will find the next eighteen months straightforward. Those that cannot have just been given a date by which they need to.