New UK late payment rules: What large businesses need to know about paying SME suppliers

The UK Government is increasing its focus on late payment practices, with significant reforms proposed that could materially affect how large businesses manage supplier relationships, procurement processes and working capital.

For many organisations, payment terms have historically been treated as a commercial matter. However, the direction of travel is clear: late payment is increasingly becoming a compliance and governance issue, attracting greater regulatory scrutiny and potential financial penalties.

At Gravita, we are advising businesses on the financial reporting, governance and operational implications of these developments. Understanding the proposed changes now can help organisations avoid future compliance issues and prepare for potentially substantial changes to procurement and payment processes.

Why is the Government targeting late payments?

Late payment has long been a concern for UK SMEs.

Smaller businesses often have limited access to working capital and can be disproportionately affected when customers delay payment. In response, the Government has announced plans to strengthen protections for SME suppliers through new legislation designed to improve payment practices across the UK economy.

The proposals were confirmed as part of the King’s Speech in May 2026 and build upon a wider programme of reforms aimed at improving payment behaviour among larger organisations.

Payment within 60 days

One of the most significant proposals is a requirement for large businesses to pay SME suppliers within 60 days. Businesses that fail to comply could face:

• Financial penalties
• Mandatory interest charges
• Increased regulatory scrutiny

The Government has indicated that interest may be charged at 8% above the Bank of England base rate for non-compliant payments.

Importantly, these protections are expected to become mandatory and may not be capable of being excluded through supplier agreements or standard terms and conditions. There are also indications that the maximum permitted payment period could be reduced further, from 60 days to 45 days.

Greater powers for the small business commissioner

The proposed reforms are expected to significantly expand the powers of the Small Business Commissioner. Potential powers could include:

• Investigating persistent late payers
• Imposing penalties
• Publicly identifying non-compliant organisations
• Increasing transparency around payment performance

This means payment practices could increasingly become a board-level governance issue rather than simply an operational finance responsibility. For some businesses, management may also need to explain payment performance and delays to boards, audit committees and other governance bodies.

Payment reporting requirements are already increasing

The proposed legislation does not exist in isolation.

Recent regulatory developments have already increased expectations around payment transparency. Companies are now required to report on supplier payment performance within their directors’ reports, increasing visibility over payment practices and placing greater emphasis on supplier relationship management.

In addition, businesses seeking certain UK Government contracts face further scrutiny. Suppliers bidding for government contracts exceeding £5 million are expected to demonstrate that at least 95% of suppliers are paid within 60 days.

As a result, payment performance is rapidly becoming a competitive differentiator as well as a compliance requirement.

The impact on finance teams

For many organisations, compliance may require more than a simple change to supplier terms.

Businesses frequently operate using a range of payment cycles, typically between 30 and 90 days. Identifying which suppliers qualify as SMEs and ensuring payments are processed within required timeframes may involve significant changes to systems, workflows and controls.

Finance teams should consider whether current processes create delays through:

• Invoice approval workflows
• Purchase order controls
• Supplier onboarding procedures
• Dispute resolution processes
• Manual payment processing

Working capital and cash flow considerations

Many organisations have historically used supplier payment terms as part of their broader working capital strategy. The proposed reforms may limit the ability to use extended payment periods as a source of funding.

Businesses may therefore need to reassess:

• Cash flow forecasting
• Treasury management
• Working capital metrics
• Supplier finance programmes
• Liquidity planning

For some businesses, the financial impact could be material, particularly where longer payment terms are widely used across the supplier base.

Key areas to review now

Organisations should begin evaluating their readiness now before the legislation comes into force. Priority areas include:

1. Supplier classification

Can your systems accurately identify SME suppliers and distinguish them from larger organisations?

2. Purchase-to-pay processes

Are there bottlenecks within procurement, invoice approval, or payment workflows that could result in missed deadlines?

3. Contract reviews

Do existing supplier agreements contain payment provisions that may need updating under the new regime?

4. Governance and reporting

Will management have access to reliable payment performance data if challenged by regulators, boards or auditors?

5. Supplier spend analysis

Do you understand where spend is concentrated and where payment risks are most likely to arise?

Why finance, procurement and legal teams must work together

One of the challenges presented by these changes is that responsibility does not sit with a single department. Successful implementation is likely to require collaboration between:

• Finance teams
• Procurement functions
• Legal departments
• Internal audit
• Company secretarial teams

• Boards and audit committees

Organisations that treat compliance as purely a finance issue may overlook contractual, operational and governance implications.

How Gravita can help

As businesses prepare for enhanced payment reporting and potential new obligations regarding SME supplier payments, Gravita can help organisations assess both the compliance and commercial impacts.

Our specialists can support with:

• Governance and reporting reviews
• Internal control assessments
• Working capital analysis
• Financial reporting implications
• Audit committee briefings
• Process improvement recommendations
• Regulatory readiness assessments

The businesses best positioned for success will not wait until legislation is finalised. They will use the transition period to review processes, strengthen controls and ensure payment practices can withstand increased scrutiny.

If your organisation is reviewing its supplier payment processes or assessing the impact of upcoming SME payment reforms, contact Gravita’s audit and advisory team to discuss how the changes may affect your business. For further assistance, please contact Joseph Brewer, a partner in our London office.