Late payment is not a minor inconvenience for small businesses. It is one of the most common causes of business failure in the UK, and it affects businesses that are otherwise profitable and growing. A business can have a strong order book, excellent margins, and a team of ten employees and still run out of cash because a large customer decides to pay in 90 days rather than 30 — using the small supplier as an interest free source of working capital.
The scale of the problem has been well documented. In 2025, there were over 17 million overdue invoices on UK books at any one time. The Federation of Small Businesses estimated that late payment contributes to approximately 50,000 small business failures per year. The total value of invoices paid late annually runs into hundreds of billions of pounds.
In March 2026, the government has introduced what it describes as the toughest package of measures against late payment in over a generation. The changes combine a hard statutory cap on large company payment terms, new enforcement powers for the Small Business Commissioner, mandatory interest and compensation provisions that can no longer be contracted out of, and enhanced Payment Practices Reporting obligations for large businesses.
At CoreAcc Accountants, we work with small and medium sized businesses across Hertfordshire and North London who are regularly waiting 60, 90, or even 120 days for payment from their larger customers. This guide explains every element of the new regime and what it means in practice for you.
Disclaimer: This article is for general information only and does not constitute legal advice. If you are considering legal action to recover a debt, always seek specific legal advice for your circumstances.
1. The 60 Day Absolute Cap
The most significant change taking effect from April 2026 is the introduction of a statutory maximum payment term of 60 days for contracts between large businesses and their smaller suppliers.
The cap works as follows. Where a large business — broadly, one that meets at least two of the criteria for a medium or large company under the Companies Act 2006, meaning turnover above £15 million, balance sheet above £7.5 million, or more than 50 employees — enters into a commercial contract with a smaller supplier, the contract cannot specify or imply payment terms longer than 60 days. Any contractual term that purports to extend payment beyond 60 days is void.
This matters because previously, a large firm could simply write "90 day payment terms" into its standard supplier agreements and a small business, eager for the contract, would often accept this without question. The new law removes that option entirely. A large company that imposes terms of 90 or 120 days on a smaller supplier after April 2026 is acting unlawfully, regardless of what its contract says.
The cap applies to the period from the date of the invoice or, where goods or services must be accepted or verified before payment falls due, from the date of completion of that acceptance or verification process. In either case, the maximum period before payment is legally overdue is 60 days.
The cap does not apply where both parties are large businesses. It also does not apply to contracts between businesses of any size and consumers. It is specifically targeted at the power imbalance between large firms and their smaller suppliers.
What counts as a small supplier for these purposes?
The cap protects businesses that do not meet the definition of a large or medium company. That means businesses with turnover of £15 million or less, a balance sheet of £7.5 million or less, and 50 employees or fewer on at least two of those three criteria. Sole traders, freelancers, and most owner managed limited companies in the UK fall comfortably within this definition.
2. The Small Business Commissioner: New Powers and Larger Fines
The Small Business Commissioner was established in 2017 to help small businesses resolve payment disputes with larger companies. Until now, the Commissioner's primary role has been mediation and the publication of complaint outcomes. The 2026 reforms grant significantly expanded enforcement powers.
From April 2026, the Commissioner can investigate large businesses on its own initiative, without waiting for a formal complaint from a specific small business. It can compel the production of payment records and internal communications. And it can issue substantial financial penalties of up to 1% of annual turnover or £50 million, whichever is lower, for repeated or systematic late payment behaviour.
The naming and shaming mechanism — publishing the names of businesses found to have breached payment obligations — continues and is now accompanied by the financial penalty for the most serious cases. The combination of public naming and a penalty of up to £50 million is designed to make late payment genuinely costly at a corporate governance level, rather than an accepted cost of doing business.
For small businesses, the significance of these expanded powers is twofold. First, the Commissioner can now act on patterns of behaviour across many suppliers, meaning that a small business does not need to be the sole complainant to trigger an investigation into a large customer. Second, the financial penalties provide a deterrent that is proportionate to the size and profitability of the businesses causing the problem.
The Commissioner's website provides a free complaints portal. Any small business experiencing late payment from a large customer can submit a complaint online. The Commissioner does not charge for its services.
3. Statutory Interest and Compensation: How Much You Are Owed
The right to claim statutory interest and fixed compensation on late commercial payments has existed since the Late Payment of Commercial Debts (Interest) Act 1998. The 2026 reforms strengthen this regime in two important ways: large businesses can no longer contract out of the statutory rate, and the enforcement of these rights is actively supported by the Commissioner rather than left entirely to individual businesses to pursue.
The statutory interest rate
Statutory interest on a late commercial payment accrues at 8 percentage points above the Bank of England base rate. With the Bank Rate currently at 3.75% as of early 2026, the statutory rate is 11.75% per annum. This is applied to the outstanding invoice amount from the date it falls due.
The daily rate of statutory interest is calculated by dividing the annual rate by 365. At 11.75% per annum, the daily rate is approximately 0.0322% of the outstanding balance per day.
The fixed compensation fees
In addition to interest, the creditor is entitled to claim a fixed compensation payment for each invoice that is paid late. This is not calculated on the invoice value — it is a fixed sum that varies with the size of the debt.
For invoices up to £999.99, the fixed compensation is £40. For invoices between £1,000 and £9,999.99, the fixed compensation is £70. For invoices of £10,000 or more, the fixed compensation is £100.
These amounts apply per invoice, not per customer. A business that has five overdue invoices from the same customer is entitled to five separate fixed compensation payments, one for each invoice.
Why these rights matter in 2026
The 2026 changes make it unlawful for large businesses to include contract terms that attempt to reduce or eliminate these statutory rights. Previously, some large firms included clauses in their supplier agreements that purported to exclude the right to statutory interest or to require the supplier to give notice before charging it. Those clauses are now void. You do not need a special clause in your own terms and conditions to claim statutory interest — the right arises automatically by law.
4. Worked Examples
Worked Example 1: Calculating What You Are Owed on a Single Overdue Invoice
Clearfield Print Services Ltd supplied printing services to a large retail chain and raised an invoice for £8,500 on 1 April 2026 with 30 day payment terms. The invoice was due on 1 May 2026. The retail chain did not pay until 30 June 2026 — 60 days late.
The daily statutory interest rate at 11.75% per annum is approximately 0.0322% per day.
Interest owed: £8,500 multiplied by 0.000322 multiplied by 60 days = approximately £164.10.
Fixed compensation: the invoice is between £1,000 and £9,999.99, so the fixed fee is £70.
Total additional amount owed: £164.10 plus £70 = £234.10.
This is the amount Clearfield is legally entitled to claim, on top of the original £8,500 invoice, simply because the customer paid 60 days late. It does not require a court order or a formal dispute — the right arises automatically from the date the invoice became overdue.
Worked Example 2: Multiple Overdue Invoices from the Same Customer
Meridian Facilities Management Ltd supplies cleaning services to a large commercial property company under a monthly contract. It raises invoices of £3,200 per month. The property company consistently pays 45 days late — every invoice is paid 45 days after the due date.
Over a 12 month period, Meridian has 12 overdue invoices, each for £3,200.
Interest on each invoice: £3,200 multiplied by 0.000322 multiplied by 45 days = approximately £46.37 per invoice.
Fixed compensation per invoice: £70 (invoices between £1,000 and £9,999.99).
Total per invoice: £116.37.
Over 12 invoices: £116.37 multiplied by 12 = approximately £1,396.44.
This is real money — nearly £1,400 per year that Meridian is legally entitled to claim from a single customer simply for paying consistently late. Most businesses in this situation never claim it. The new regime, with the Commissioner actively investigating persistent late payers, makes it more likely that large companies will change behaviour rather than absorb endless claims.
Worked Example 3: A Contractor With a Single Large Invoice
Apex Building Contractors Ltd completed a substantial commercial fit out for a large developer, issuing a final invoice of £85,000 on 1 March 2026 with 30 day payment terms. The developer paid on 15 May 2026 — 45 days late.
Interest owed: £85,000 multiplied by 0.000322 multiplied by 45 days = approximately £1,229.85.
Fixed compensation: the invoice exceeds £10,000, so the fixed fee is £100.
Total additional amount owed: £1,229.85 plus £100 = £1,329.85.
For a contractor with cash flow pressure — perhaps because subcontractors must be paid on their own payment terms regardless of when the developer pays — this additional entitlement is not trivial. It represents a partial but meaningful compensation for the working capital cost of financing the developer's debt.
5. The Payment Practices Reporting Regime
Large companies — those with turnover above £36 million and more than 250 employees — have been required since 2017 to publish twice yearly reports on their payment practices, including the average time taken to pay invoices. This data is publicly available on the government's online portal.
The 2026 reforms expand the reporting requirement. The definition of a "large company" for Payment Practices Reporting purposes has been revised to capture a broader group of businesses, aligned more closely with the new 60 day cap threshold. More businesses must now report, and the reports must include additional data on the proportion of invoices paid outside the 60 day statutory maximum.
This public reporting serves a purpose beyond transparency. It gives small businesses the ability to check the payment track record of a prospective customer before entering a contract — enabling informed decisions about whether to accept an engagement, whether to require a deposit, and what credit terms to offer.
The government has indicated it intends to introduce an automated alert system that notifies small suppliers when a large customer's Payment Practices Report shows a significant deterioration in payment times. This is not yet in force but is expected to form part of the next phase of late payment reform.
6. How to Enforce Your Rights in Practice
Knowing your legal rights is the starting point. Enforcing them requires a practical approach.
Step one: get your terms right
Your own invoices and terms and conditions should state clearly that all late payments will attract statutory interest at 8 percentage points above the Bank of England base rate under the Late Payment of Commercial Debts (Interest) Act 1998, together with fixed compensation. You do not need to quote the Act verbatim on every invoice, but having it in your standard terms puts the customer on notice and removes any basis for claiming ignorance of their obligations.
CoreAcc Accountants can review your terms and conditions and invoice template to ensure they are correctly worded.
Step two: issue a late payment notice promptly
When an invoice becomes overdue, issue a written notice that states the invoice number and amount, the due date, the number of days overdue, the statutory interest calculated to the date of the notice at the applicable rate, and the fixed compensation amount. This letter does not need to be formal or legalistic — it simply needs to put the customer on notice that you are aware of the overdue amount and that additional charges are accruing.
Many businesses find that a clear, professional late payment notice prompts immediate settlement from customers who have simply allowed the invoice to drift. A customer that knows you are tracking statutory interest and intend to claim it is more likely to prioritise your invoice than one that expects no consequences.
Step three: consider the Small Business Commissioner
If a large customer is persistently late and a direct approach has not resolved the issue, submitting a complaint to the Small Business Commissioner is free and carries no risk of damaging the relationship in the way that formal legal proceedings might. The Commissioner's mediation process can result in payment without the need for court action. And from April 2026, the Commissioner's investigation powers mean that your complaint may form part of a broader investigation even if your specific case is not resolved through mediation.
Step four: formal debt recovery
For invoices that cannot be resolved through direct communication or the Commissioner, formal debt recovery options are available. The Small Claims Court handles claims up to £10,000 in England and Wales, with a simplified procedure and modest court fees. For larger amounts, the County Court money claim process applies. In most cases of undisputed commercial debt — where the customer acknowledges the invoice but simply has not paid — a judgment can be obtained relatively quickly and without legal representation.
Many businesses are deterred from pursuing formal recovery because they fear damaging an ongoing commercial relationship. This is a legitimate concern, but it should be weighed against the reality that a customer who consistently pays late and faces no consequences has little incentive to change their behaviour. The 2026 reforms are specifically designed to shift this dynamic — making late payment more costly for the payer and less costly to enforce for the supplier.
7. The Cash Flow Impact: Why Late Payment Costs More Than Just the Invoice
Beyond the direct cost of the late invoice, persistent late payment has compounding cash flow consequences that are easy to underestimate.
A business waiting 60 days rather than 30 days for payment of a £10,000 monthly invoice is effectively financing £10,000 of someone else's business for a month. At the current statutory interest rate of 11.75% per annum, the opportunity cost of that financing is approximately £96.25 per month. Across multiple customers and multiple invoices, the aggregate financing cost can be significant.
More damaging is the effect on the working capital cycle. A business that invoices clients on 30 day terms but collects payment in 60 days has a 30 day cash gap — money owed but not received — that must be financed from existing reserves, an overdraft, or invoice finance. As the business grows and invoices larger amounts, this gap widens in absolute terms even if the percentage stays constant.
CoreAcc Accountants builds cash flow forecasts for clients that explicitly model the impact of payment timing — showing not just what is owed but when it is expected to arrive in the bank account and identifying the months where the gap between commitments and receipts is widest. This is the tool that makes late payment visible before it causes a crisis rather than after.
Frequently Asked Questions
Does the 60 day payment cap apply to all businesses?
No. The 60 day cap applies specifically to contracts between large businesses and their smaller suppliers. A large business is broadly one that meets at least two of three criteria: turnover above £15 million, balance sheet total above £7.5 million, or more than 50 employees. The cap protects smaller suppliers who do not meet these thresholds. It does not apply to contracts between two large businesses, or to contracts between any business and a consumer.
What is the statutory interest rate on late payments?
Statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 accrues at 8 percentage points above the Bank of England base rate. With the base rate at 3.75% in March 2026, the statutory rate is 11.75% per annum. This rate changes when the Bank of England adjusts the base rate. The interest accrues from the date the invoice falls due, calculated on a daily basis.
What is the fixed compensation fee for late payment?
In addition to interest, you can claim a fixed compensation payment for each overdue invoice. The amount depends on the value of the debt: £40 for invoices under £1,000; £70 for invoices between £1,000 and £9,999.99; and £100 for invoices of £10,000 or more. These amounts are per invoice, not per customer, and apply automatically without needing to be specified in your contract.
Can a large business contract out of the statutory interest rules?
No, not since the 2026 reforms. Previously, some large businesses included contract terms that attempted to exclude or reduce the right to statutory interest. Any such term in a contract governed by the 1998 Act was always challengeable, but from April 2026 it is explicitly void. The right to claim statutory interest and fixed compensation is now a mandatory entitlement that cannot be excluded by contract.
How do I calculate the interest I am owed?
The daily rate of statutory interest is the annual rate divided by 365. At 11.75% per annum, this is approximately 0.0322% per day. Multiply the outstanding invoice amount by this daily rate, then by the number of days the payment is overdue, and add the fixed compensation for that invoice. CoreAcc Accountants can calculate this for you precisely for any specific overdue invoice.
Do I need to have specific late payment terms in my contract to claim the statutory interest?
No. The right to claim statutory interest arises automatically by law under the Late Payment of Commercial Debts (Interest) Act 1998, without any special clause in your contract. However, including a clear reference to the Act in your terms and conditions and invoice puts your customer on explicit notice, which is good practice and may prompt faster payment.
What can I do if a large company is persistently paying me late?
Start by issuing a formal late payment notice setting out the interest and compensation owed. If this does not resolve the issue, consider submitting a complaint to the Small Business Commissioner, which is free and may result in mediation or a formal investigation of the customer's payment practices. If the debt remains unpaid and is undisputed, formal debt recovery through the Small Claims Court (for amounts up to £10,000) or the County Court money claims process is available.
What is Payment Practices Reporting and how can it help me?
Large companies are required to publish reports twice a year on their payment practices, including average payment times and the proportion of invoices paid late. These reports are publicly available through the government's online portal. Before entering a contract with a new large customer, checking their Payment Practices Report can tell you whether they have a track record of paying on time or whether persistent late payment is the norm. This information can inform your decision on whether to require a deposit, shorten your payment terms, or price the contract to reflect the financing cost.
What if my large customer simply disputes the invoice to avoid paying?
A genuine commercial dispute about whether goods or services were delivered or whether the invoice amount is correct is different from late payment. Where a customer disputes an invoice, payment terms are suspended while the dispute is resolved. However, a large customer that raises spurious disputes as a mechanism to delay payment — a practice sometimes called "manufactured disputes" — is acting in bad faith. Keep detailed records of delivery, acceptance, and any correspondence about the work performed. If a dispute is raised that has no genuine basis, this evidence is essential for both the Commissioner and the courts.
What CoreAcc Accountants Can Help You With
Late payment affects your cash flow, your ability to pay staff and suppliers on time, and ultimately your ability to grow. At CoreAcc Accountants, we help businesses across Hertfordshire and North London protect themselves through practical measures.
We can review your standard terms and conditions to ensure they reference your statutory interest rights correctly and are compliant with the 2026 legislation. We can calculate the exact interest and compensation owed on any specific overdue invoice or group of invoices. We can build cash flow forecasts that make the impact of your current debtor position visible in terms of specific monthly shortfalls rather than as an abstract number on a balance sheet. And we can help you structure your invoicing process to make late payment detection and the issuance of late payment notices a routine part of your monthly financial management rather than an afterthought.
Get in Touch
If late payment is affecting your business — whether from a single large customer or as a recurring pattern across your debtor book — contact CoreAcc Accountants today for a conversation about your options.
The law is on your side in 2026 in a way it simply was not in previous years. Use it.
CoreAcc Accountants is an ACCA accredited firm of Chartered Certified Accountants based in Borehamwood, Hertfordshire. This article was published in March 2026 and reflects legislation and government guidance in force at that date including the Late Payment of Commercial Debts (Interest) Act 1998 and the 2026 late payment reforms. It does not constitute legal advice. Always seek specific advice for your individual circumstances.
