Payment Practices - the latest developments on reporting and late payments

2026 is set to be a pivotal year for UK payment practices. Following the Government's late payment consultation (which closed in October 2025), businesses should prepare for substantial changes to how they pay suppliers, report on payment performance, and manage contractual payment terms. This note summarises the key developments.

What Has Already Changed

The Reporting on Payment Practices and Performance Regulations have been amended twice in the past 18 months, expanding the scope of information that qualifying businesses must publish on the Government's reporting portal twice per financial year.

From January 2025, qualifying businesses must now report the monetary value of late payments (not just percentages) and separately disclose the percentage of invoices not paid within the agreed period due to a dispute. This latter requirement is intended to address concerns that some businesses were using tactical invoice disputes to delay payment.

From April 2025, businesses with qualifying construction contracts must report on their use of retention clauses, including whether retentions are used in all contracts or only in specific circumstances, standard retention percentages, whether retention terms are back-to-back with client contracts, and the mechanisms for releasing retained monies. A director must approve this retention reporting before publication.

The thresholds for qualifying businesses have also increased for financial years beginning on or after 6 April 2025 (to £54 million turnover or £27 million balance sheet total, with employees remaining at 250). Businesses meeting two or more of these criteria on both of their last two balance sheet dates must report, meaning some businesses will fall out of scope whilst remaining subject to payment legislation generally.

Changes Taking Effect in 2026

Due to the Companies (Directors’ Report)(Payment Reporting) Regulations 2025 coming into force, from 1 January 2026, large companies must include payment practices disclosures in their Directors' Reports for financial years beginning on or after that date. This is a separate, additional requirement from the existing twice-yearly portal reporting under the Reporting on Payment Practices and Performance Regulations mentioned above - both will apply concurrently. The Directors' Report disclosures will bring payment performance information into audited annual reports, increasing visibility to shareholders and other stakeholders.

The required disclosures include a description of standard payment terms (expressed in days), the average number of days taken to make payments, the percentage and sum total of payments made within 30 days, 60 days, and 61 or more days, the percentage and sum total of payments not made within the agreed period, and details of any variation to standard payment terms during the year (including how suppliers were notified or consulted). Medium-sized companies and companies in their first financial year are exempt. Directors and audit committees will need to ensure systems are in place to capture and verify the required data, particularly given that audit committees may be legally required to scrutinise payment practices under forthcoming legislation.

For businesses supplying to the public sector, the Procurement Act 2023 means that tightened thresholds now require payment of invoices within an average of 45 days and 95% of supply chain invoices within 60 days. Failure to meet these thresholds results in exclusion from bidding for Government contracts worth over £5 million annually.

What to Expect from the Consultation Response

The Government's response to its late payment consultation is expected imminently. The consultation proposed the most significant reforms to B2B payment legislation in over 25 years, including a mandatory 60-day maximum payment period (reducing to 45 days after five years), a 30-day invoice verification deadline after which disputes cannot be raised, mandatory statutory interest at 8% above Bank of England base rate with no ability to contract out (amending the Late Payment of Commercial Debts (Interest) Act 1998), and enhanced powers for the Small Business Commissioner to issue financial penalties and conduct binding arbitration.

If implemented, these changes would require businesses to review and amend standard form contracts, update accounts payable processes to ensure timely invoice verification, and budget for significantly higher costs when payments are late.

Enforcement Outlook

To date, the Department for Business and Trade has taken a light-touch approach to enforcing the reporting regulations, relying primarily on transparency and reputational pressure. However, the direction of travel appears to be towards stronger enforcement. The proposed Small Business Commissioner powers (under the Enterprise Act 2016), combined with mandatory Directors' Report disclosures, signal that payment practices will be subject to greater scrutiny and potential penalties going forward.

Recommended Actions

Large companies (meeting two of: turnover over £54 million, balance sheet over £27 million, or over 250 employees) should prepare systems to capture Directors' Report data for financial years beginning from January 2026, and ensure audit committees are briefed on forthcoming scrutiny requirements.

Businesses in the construction sector should review their use of retention clauses and prepare for potential prohibition or mandatory protection requirements, and ensure compliance with the new retention reporting obligations for financial years beginning from April 2025.

Businesses supplying to the public sector (particularly those bidding for contracts over £5 million annually) should verify compliance with the 45-day average payment and 95% within 60 days thresholds, and ensure 30-day terms flow down to subcontractors.

All businesses should review existing supplier and customer contracts for payment terms exceeding 60 days in anticipation of the proposed hard cap; assess internal invoice handling processes to ensure disputes are raised within 30 days of invoice receipt; review interest rate clauses in standard terms, which may need to be amended if the ability to contract out of statutory interest is removed; and monitor the publication of the Government's consultation response for confirmation of legislative timetables.