UK Invoice Payment Terms: What the 60-Day Cap Means
A new law is working its way through Parliament that will change how large UK businesses are allowed to set invoice payment terms with their suppliers. It isn't in force yet, and the direction of travel is clear enough for finance teams to start preparing ahead of Royal Assent.
What the Bill actually does
The Commercial Payments Bill [HL], originally publicised by government as the Small Business Protections Bill, introduces what the government's own announcement calls the toughest late payment regime in the G7. Four changes matter most for how finance teams set invoice payment terms:
A 60-day cap on invoice payment terms. Large firms will no longer be able to agree payment terms longer than 60 days with smaller suppliers, with strictly limited exemptions. The government will also have a power to shorten that limit in future, though not for at least five years.
Mandatory interest on late payments. Interest will be set at 8% above the Bank of England base rate, and it will no longer be possible to contract out of it.
A ban on withholding retention payments under construction contracts. Retentions, the portion of earned money held back until a project's defects period ends, have long been one of the slowest-paid sums in construction, and the Bill prohibits deducting or withholding them altogether.
Expanded powers for the Small Business Commissioner, including the ability to investigate poor payment practices, adjudicate disputes, and impose financial penalties following investigations.
The Small Business Commissioner's own guidance also flags a point that is easy to miss: a proposed time limit on raising invoice disputes, intended to stop late-stage disputes being used to delay payment indefinitely.
Why the government is acting
Late payments are estimated to cost the UK economy £11 billion a year. The current framework, built on the 1998 Late Payment of Commercial Debts Act and the voluntary Prompt Payment Code, has not solved the problem. The House of Lords Bill briefing sets out that history in full: nearly 3,000 companies signed the Prompt Payment Code, committing to pay 95% of invoices within 60 days, yet poor practice persisted. This Bill replaces a voluntary commitment with a statutory one.
When it becomes law
The Bill had its first reading in the House of Lords on 19 May 2026 and has since passed second reading, committee stage and report stage (15 September 2026), with its third reading scheduled for 20 October 2026. It then moves to the equivalent stages in the Commons, before Royal Assent. Most legal and advisory commentary, including KPMG's analysis, points to late 2026 or early 2027 as the likely window for Royal Assent. Finance teams that wait for a confirmed date risk starting preparation too late.
Where the pressure will land
The cap is a legal constraint, and the operational impact sits with finance and AP teams. Boards and audit committees of large businesses with a history of late payment will be required to publish commentary explaining why, and what they are doing to fix it. That's a new form of scrutiny, and it depends entirely on how much visibility a finance team already has into its own payment performance.
Most AP teams cannot answer that question quickly today. Invoice processing that still often relies on manual matching and approval chains makes it hard to see, in real time, where payments are sitting against the clock. Our own research into where finance time disappears found that a significant share of AP capacity goes on exactly this kind of manual tracking, time that could go on decisions that actually need a person. Corpay's research among 300 UK CFOs found that 83% say spend processes are still more manual than they should be. AP automation closes that gap directly, giving finance teams the payment-timing visibility that board-level reporting will now require, and reducing the chance that a payment slips past 60 days simply because nobody was watching the clock.
Cards as a practical lever
Payment terms are one part of the picture. How a payment is settled is the other, and that's where cards add working capital value on top of speed.
A bank transfer treats the buyer's obligation and the supplier's settlement as a single event happening on the same day. A purchasing card or virtual card separates the two. The supplier is settled quickly, and because the Bill treats payment as made when the supplier receives the funds, that satisfies the obligation well inside the 60-day cap. The buyer, meanwhile, still benefits from their own card billing cycle, which can extend working capital by several additional weeks. It also generates a structured, automatic audit trail at the point of payment, useful evidence if a business's payment performance is ever scrutinised under the new board-reporting requirements.
Corpay's research found that 85% believe their current payment processes increase the risk of error, fraud or off-policy spend, and 81% said 30 to 44 days of additional working capital flexibility would be very valuable or essential. Our Card-First Approach to Spend Modernisation whitepaper sets out the fuller case for treating cards as a practical starting point for this kind of change, without needing to replace existing finance infrastructure. For businesses managing a high volume of smaller, recurring supplier payments, particularly the kind of tail spend that sits outside formal procurement, this is often a simpler operational fix than restructuring approval workflows from scratch.
What to do now
Audit current supplier contracts and their invoice payment terms against the 60-day cap, and flag any that would need renegotiating.
Check dispute-handling processes against the proposed statutory time limit, since disputes raised too late will no longer buy extra time.
Get real visibility into payment performance data, since board-level reporting will depend on having accurate figures to hand.
Review how payments actually move, from approval to settlement, to identify where delays are built into the process.
None of this requires waiting for Royal Assent. The businesses that use the next twelve months to plan for compliance will be the ones that meet the new requirements without disruption, and avoid the penalties and costs that follow.
Frequently Asked Questions
What are the new UK invoice payment terms rules?
The Commercial Payments Bill [HL] will cap invoice payment terms at 60 days for large firms paying smaller suppliers, with mandatory interest of 8% above the Bank of England base rate on late payments. Importantly, it also removes the ability of firms to negotiate longer payment terms or lower interest on late payments.
When do the new invoice payment terms rules become law in the UK?
The Bill has completed report stage in the House of Lords, with its third reading scheduled for 20 October 2026, then the Commons stages, before Royal Assent. It's expected to come into force in late 2026 or early 2027, though no date is currently confirmed.
What happens if a business breaches the 60-day invoice payment terms cap?
The Small Business Commissioner will have powers to investigate breaches, adjudicate disputes, and impose financial penalties on businesses that persistently pay late.
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