The Department for Business and Trade’s (DBT) consultation signals a decisive move towards a far more interventionist framework on late payment. We have previously written about the headline proposals here. In this article we outline the legal and operational implications that in-house teams should begin preparing for now.
Removing the ability to contract for payment terms beyond 60 days will do more than shorten payment cycles. It will significantly affect:
Although “pay when paid” provisions are already restricted, many businesses rely on functionally similar mechanisms e.g. milestone dependencies, acceptance gating, linked deliverable sequencing. These mechanisms may now become unworkable if they have the effect of extending payment beyond 60 days.
Contracting teams will need to revisit how payment risk is managed without relying on very long credit periods. In most cases this is likely to mean tighter, more frequent invoicing milestones, clearer acceptance criteria and, where appropriate, pricing in a higher risk margin rather than deferring cash flow. In higher-value or higher-risk projects, parties may also look more seriously at tools such as performance guarantees or escrow arrangements.
A mandatory 30-day dispute window will alter how disputes are framed and managed. Some key practical risks include:
The proposed 30-day dispute window will principally affect buyers, who will lose the right to withhold payment if they do not raise a formal dispute within that period. In-house teams should therefore work with finance and procurement to define exactly what constitutes an ‘invoice dispute’ (for example, a specific email template or system status) and embed a simple, trackable process for logging disputes on incoming invoices within 30 days of receipt.
On the receivables side, suppliers should maintain parallel processes to record and respond to disputes raised by customers, and to challenge any unilateral adjustments (such as debit notes) within relevant time limits.
Because parties are likely to be prevented from contracting out of mandatory statutory interest, mechanisms that have historically been used to soften or sidestep the late-payment regime will need careful review.
Liquidated damages clauses that purport to replace statutory interest, set-off wording designed to extinguish interest claims as a matter of course, or rebate and discount structures expressly traded against a waiver of interest may no longer be effective to that extent.
These tools will still have a role, but they will need to operate alongside, rather than instead of, the statutory regime.
General counsel should therefore map where pricing, rebates, set-off and liquidated damages interact with late-payment risk and ensure those structures do not amount to an impermissible exclusion of statutory rights.
While the legal reforms focus on tightening statutory rights and enforcement, it is important for in-house teams to anticipate how different categories of businesses are likely to adapt their commercial behaviour.
For businesses falling within the payment reporting regime, broadly those exceeding the large-company size thresholds (currently turnover above £63m, balance sheet total above £31.5m, or more than 250 employees), the combination of audit committee oversight, annual report disclosure and likely Small Business Commissioner (SBC) scrutiny will significantly elevate compliance expectations
These businesses will continue to rely on legitimate commercial tools such as volume rebates, discount structures and marketing contributions, which remain structurally important in many sectors. However, we are unlikely to see:
Once statutory interest becomes mandatory and reportable, such provisions create obvious governance, compliance and reputational risks, not least the prospect of an SBC enquiry or an awkward audit committee conversation. As a result, sophisticated businesses are likely to continue using these mechanisms, but in cleaner, more defensible forms that operate alongside, rather than instead of, the statutory regime.
Mid-market firms and privately owned groups may take longer to adjust. In many cases, we expect a continuation of:
These will likely be seen particularly where suppliers are fragmented or have limited negotiating power. Some organisations may continue to disregard statutory interest in practice unless challenged.
The difference under the proposed reforms is the shift in leverage. Mandatory interest, shorter dispute windows and strengthened SBC powers increase the legal and enforcement risk for businesses that rely on opaque or heavy-handed mechanisms to delay payments. If the SBC begins issuing financial penalties linked to unpaid statutory interest, practices that appear designed to dilute or defer the statutory regime may attract scrutiny.
For SMEs, behaviour will continue to be shaped as much by commercial relationships as by legal rights. Many smaller suppliers are reluctant to claim interest for fear of jeopardising customer relationships, and this is unlikely to disappear overnight.
However, two changes are foreseeable:
In practice, statutory interest may therefore function less as a routinely collected entitlement and more as a structured bargaining chip in commercial discussions.
By approaching these proposals not merely as procedural changes but as systemic shifts in how payment risk, governance and supply-chain relationships are managed, in-house teams can position their organisations ahead of the regulatory curve.
Ashfords can support businesses in mapping these deeper contractual and operational impacts, ensuring that future compliance is embedded into commercial strategy, not retrofitted under pressure.
For more information please contact the commercial team.
