Get Paid on Time: Late Payment Rights and Payment Terms for Growing Businesses

Winning a bigger customer feels like progress. Then the invoice goes out, and 30 days becomes 60, then 90. The work is done and the cash is not in. For a growing business, that gap can do more damage than losing the customer would have.

Late payment is a contract problem before it is a collections problem. The terms you agree at the start decide how much leverage you have at the end. This article covers what UK law gives you by default, what is proposed, and the payment terms worth agreeing before you start work.

What the law gives you today

The Late Payment of Commercial Debts (Interest) Act 1998 applies to most business-to-business contracts for goods or services across the UK. If you are a supplier and your customer pays late, you have a right to claim:

- statutory interest at 8% a year above the Bank of England base rate, from the day after the payment was due

- a fixed sum for recovery costs: £40 for debts up to £999.99, £70 for debts from £1,000 to £9,999.99, and £100 for debts of £10,000 or more

- reasonable further costs of recovering the debt, where they exceed the fixed sum

The fixed sum is charged once per late payment, not once per reminder. And the right is only automatic if your contract does not set a different interest rate. A contract can replace the statutory remedy, but only with one that is a substantial remedy for late payment. A token clause will not do, so read what you have signed.

Two practical points. First, if you have never mentioned interest to a customer, claiming it is still allowed, but it will land better if your terms say so from the start. Second, the statutory right does not tell the customer when payment is due. That comes from your contract. If it is silent, the Act implies a 30-day period from delivery or invoice. Most businesses are better off saying it plainly.

What is proposed

The Commercial Payments (Late Payments) Bill was introduced to Parliament in May 2026. As described by the government and the Small Business Commissioner, it would introduce:

- a maximum payment term of 60 days when a larger business pays a smaller supplier, with limited exemptions

- mandatory interest on late payments, at 8% above the Bank of England base rate

- a fixed sum for suppliers where a customer raises an invoice dispute late or without enough detail

- a ban on cash retentions under construction contracts, with a transition period

- new powers for the Small Business Commissioner to investigate, adjudicate disputes and fine persistent late payers

On 20 October 2026, the Bill is at the end of its stages in the House of Lords. It still has to pass the House of Commons and receive Royal Assent, and details may change. The government has said the measures will not apply retrospectively and that there will be a lead-in period and transition. So this is something to prepare for, not something to rely on today. Check the current position before you act on any of it.

Payment terms worth agreeing before you start

You do not need to wait for new law. Most late payment problems are avoided by a few lines in the contract or order form:

- **A clear due date.** "Within 30 days of invoice date", not "on completion" or "in due course".

- **What triggers the invoice.** Delivery, a milestone or acceptance. This links to agreeing acceptance criteria up front, which we covered in an earlier article.

- **Interest and recovery costs.** State the late-payment interest rate and that you may claim the fixed recovery sum. If you rely on the statutory rate, say so.

- **A dispute window.** Ask the customer to raise any query about an invoice within a set number of days, say 7 or 14, and to pay the undisputed part meanwhile. This stops a small query holding up the whole invoice.

- **A right to pause.** Say that you may suspend work if an undue invoice remains unpaid after a reminder. Used sparingly, this keeps the relationship honest.

- **Deposits or staged payments.** For a new customer or a larger job, take part of the fee up front or split it by milestone. It limits what you are owed at any one time.

Larger customers will often push back and offer their own standard terms with 60 or 90 days. You can accept a longer term if you choose to, but do it knowingly and price for it. A 90-day term on a large contract is a loan to your customer. Ask whether you can afford to make it.

Build the habit, not just the clause

Terms only help if you use them. A few habits make the difference:

- Invoice on the day the trigger happens, not at month end.

- Put the due date and purchase order number on the invoice.

- Send a polite reminder a few days before the due date and another the day after.

- Keep a short record of who agreed what, and when.

- Decide in advance when you will claim interest. Many businesses claim it only from persistent late payers, and that is a reasonable approach if it is a deliberate one.

Where ongoing support fits

Payment terms are one of several contract decisions that shape how a growing business is treated by its customers. Having someone review your standard terms once, and update them as you grow, is usually cheaper than fixing a single large unpaid invoice. That is what ongoing support looks like in practice: small, regular decisions that keep cash moving.

This article is general information, not legal advice for your situation.