Late Payment Rules in the UK 2026: What Businesses Need to Know

Last reviewed: September 2026

Late payment remains a significant challenge for UK businesses.

An unpaid invoice can quickly become more than an administrative problem. For businesses managing payroll, suppliers, tax and other operating costs, waiting weeks or months for money that has already been earned can put unnecessary pressure on cash flow.

The rules surrounding commercial late payments are also receiving renewed attention in 2026. The Government has introduced the Commercial Payments Bill, which proposes significant changes to payment terms, late payment interest and the powers available to the Small Business Commissioner.

However, it is important to distinguish between the law that currently applies and proposed changes that have not yet come into force.

In this guide, we explain the current UK late payment rules, what businesses can do when an invoice remains unpaid and what the proposed changes could mean for commercial payments.

Key points

• Businesses can generally claim statutory interest when another business is late paying for goods or services.
• Statutory interest on qualifying late commercial payments is currently 8% above the Bank of England base rate, unless a different contractual rate applies.
• Businesses may also be able to recover fixed compensation for the cost of recovering a late commercial payment.
• The Fair Payment Code replaced the Prompt Payment Code in 2024 and encourages businesses to pay suppliers more quickly.
• The Commercial Payments Bill proposes a maximum 60 day payment term in many business to business contracts, subject to exemptions.
• The proposed legislation would also introduce mandatory interest on late commercial payments at 8% above the Bank of England base rate.
• The proposed changes are not yet the law and will not apply retrospectively.

What are the current UK rules on late commercial payments?

Under the current rules, businesses can generally claim interest when another business is late paying for goods or services.

If a payment date has been agreed, commercial payment terms will usually need to be within 60 days for business to business transactions. Longer terms can be agreed in some circumstances, but they must be fair to both businesses.

Where no payment date has been agreed, payment will generally become late 30 days after the customer receives the invoice, or 30 days after the goods or service has been provided if that is later.

This means businesses should not assume that they have to simply wait indefinitely for an overdue invoice to be paid.

The precise position can depend on the contract, the nature of the transaction and whether there is a genuine dispute about the invoice, so businesses should check the relevant contractual terms before taking action.

Can you charge interest on an overdue business invoice?

In many cases, yes.

For qualifying late commercial payments, statutory interest is currently 8% above the Bank of England base rate. This is provided for under the Late Payment of Commercial Debts (Interest) Act 1998.

However, statutory interest does not necessarily apply where the contract contains a different contractual interest provision that provides an appropriate remedy for late payment.

For example, if a business is owed £10,000 and statutory interest applies, the amount of interest will depend on the applicable Bank of England base rate and the number of days the invoice has remained overdue.

Interest can therefore continue to accumulate while an invoice remains unpaid.

Businesses considering adding interest should make sure they understand the relevant contractual and statutory provisions before doing so.

Can you recover the cost of chasing an unpaid invoice?

Businesses may also be able to claim compensation for the cost of recovering a late commercial payment.

The statutory fixed compensation amounts are currently:

Amount of debt	Fixed recovery cost
Up to £999.99	£40
£1,000 to £9,999.99	£70
£10,000 or more	£100

These amounts can be claimed in addition to statutory interest where the legislation applies. In some circumstances, reasonable additional recovery costs may also be recoverable.

This is one reason it is important for businesses to understand their rights rather than simply writing off an overdue invoice.

What is the Fair Payment Code?

The Fair Payment Code was launched in December 2024 and replaced the former Prompt Payment Code.

It is administered by the Office of the Small Business Commissioner and recognises businesses that demonstrate fair and timely payment practices.

The Code has three award levels:

Gold: At least 95% of all invoices paid within 30 days.

Silver: At least 95% of invoices to large suppliers paid within 60 days and at least 95% of invoices to small suppliers paid within 30 days.

Bronze: At least 95% of all invoices paid within 60 days.

The Code also requires participating businesses to follow principles based around being Clear, Fair and Collaborative with their suppliers.

For businesses supplying larger organisations, the Fair Payment Code provides a useful indication of what good payment practice should look like.

What is changing with late payment legislation in 2026?

The Government introduced the Commercial Payments Bill in May 2026, with the aim of tackling late and long payment practices between businesses.

The Bill proposes a number of significant changes, including:

• A maximum payment period of 60 days for many commercial contracts, subject to specified exemptions.
• Mandatory interest on late commercial payments at 8% above the Bank of England base rate.
• Additional rights for suppliers where a purchaser raises a dispute late or without sufficient information.
• Restrictions relating to retention payments in construction contracts.
• Stronger powers for the Small Business Commissioner to investigate poor payment practices and take enforcement action in appropriate circumstances.
• Additional reporting requirements for large businesses.

The Government says the proposed measures are intended to improve payment practices and cash flow through UK supply chains.

Is the Commercial Payments Bill law yet?

No.

This is an important distinction for businesses.

As of September 2026, the Commercial Payments Bill is still progressing through Parliament. It has completed Committee Stage in the House of Lords, with Report Stage taking place on 15 September 2026. It has not yet received Royal Assent and therefore the proposed new regime is not currently in force.

The Government has also stated that the proposed measures will include a lead-in period and will not apply retrospectively. Payments, contracts and disputes will be judged according to the rules applicable at the relevant time.

Businesses should therefore continue to follow the rules currently in force while monitoring the progress of the legislation.

What should you do if a customer does not pay an invoice?

An overdue invoice does not necessarily mean that legal action is immediately required.

A structured approach can often resolve the issue before matters need to escalate.

1. Check the invoice and contract

Before chasing a customer, make sure the invoice was correctly issued and that the agreed payment terms have expired.

Check whether there are any contractual requirements around invoicing, notice or disputes.

2. Contact the customer

A straightforward conversation can sometimes identify an administrative problem, such as an incorrect purchase order, missing invoice or payment approval issue.

It can also establish whether the customer genuinely disputes the amount owed.

3. Follow up formally

If payment is still outstanding, set out the amount owed, the relevant invoice details and a clear deadline for payment.

Keep records of your correspondence and any commitments made by the customer.

4. Consider interest and recovery costs

Where the relevant legislation applies, you may be entitled to claim statutory interest and fixed compensation for the cost of recovering the debt.

Make sure you understand whether statutory or contractual interest applies before adding charges to the amount owed.

5. Consider professional debt recovery

If repeated attempts to recover the money have failed, using a commercial debt recovery specialist can provide a structured escalation route without requiring your own team to spend hours repeatedly chasing payment.

For many businesses, this is particularly valuable when the amount owed is significant or when internal staff simply do not have the time to continue pursuing it.

When should you use a commercial debt recovery agency?

There is no single point at which every business should refer an overdue invoice to a debt recovery agency.

However, it may be appropriate when:

• An invoice has passed its agreed payment date.
• The customer has stopped responding to payment requests.
• Promised payment dates have repeatedly been missed.
• Your internal team is spending too much time chasing outstanding balances.
• You have a large number of overdue accounts to manage.
• You need to escalate recovery while maintaining a professional relationship with the customer.
• You want to explore legal or further recovery options.

Using a professional debt recovery service does not automatically mean that a customer relationship has to end.

A properly managed recovery process should establish the position, communicate clearly with the debtor and seek payment while treating all parties fairly and professionally.

Is commercial debt recovery suitable for smaller invoices?

Yes.

The fact that an invoice is relatively small does not mean the money is not important to your business.

For example, a business with 20 unpaid invoices of £500 has £10,000 outstanding. Individually, each invoice may not seem significant enough to justify extensive internal resources. Collectively, however, the balance can have a meaningful impact on cash flow.

There is also a wider benefit to having a consistent approach to overdue accounts.

If customers know that unpaid invoices will continue to be followed up, it can help establish clearer expectations around payment.

What does commercial debt recovery cost?

The cost depends on the provider, the type of debt and the recovery service required.

At Paragon Credit Management, we operate on a no win, no fee basis for our commercial debt recovery service.

This means businesses can refer suitable overdue invoices to us without paying an upfront recovery fee.

Our approach is designed to remove the time and pressure associated with chasing overdue commercial debt while maintaining clear communication and a professional approach throughout the recovery process.

What happens when you instruct Paragon Credit Management?

Every debt is different, which is why we take the time to understand the circumstances before progressing recovery.

Our process can include:

Case assessment

We review the circumstances surrounding the debt and the information available.

Professional debtor contact

We contact the debtor and seek to establish a clear position regarding the outstanding balance.

Payment arrangements

Where appropriate, we can discuss and monitor suitable payment arrangements.

Ongoing follow up

We continue to monitor commitments and pursue outstanding balances where payment is not made as agreed.

Escalation

Where appropriate, we can discuss further recovery options, including legal escalation and enforcement.

The objective is straightforward: to help businesses recover money that is legitimately owed to them, without placing the burden of repeated chasing on their own teams.

Frequently asked questions about late payment and unpaid invoices

How long can a business take to pay an invoice?

The answer depends on the agreed payment terms and the circumstances of the transaction. Where no payment date has been agreed, commercial payments will generally become late 30 days after the relevant invoice or delivery/service date.

Can I charge interest on an overdue business invoice?

In qualifying commercial transactions, statutory interest can generally be claimed at 8% above the Bank of England base rate unless a different contractual interest provision applies.

Can I recover the cost of debt recovery?

Businesses may be able to claim fixed compensation of £40, £70 or £100 depending on the amount of the outstanding debt, along with reasonable additional recovery costs in appropriate circumstances.

Can I recover an unpaid invoice without going to court?

Yes. Many commercial debts are resolved through direct contact, negotiation and professional debt recovery without court proceedings. Where recovery cannot be achieved voluntarily, businesses can consider further legal options.

Should I use a debt collection agency for a small debt?

There is no minimum invoice value that automatically determines whether professional recovery is appropriate. The decision should take into account the value of the debt, the time involved in pursuing it and the wider relationship with the customer.

What if the customer disputes the invoice?

A genuine dispute should be investigated rather than treated automatically as a straightforward unpaid debt. Businesses should establish what is disputed, review the underlying contract and evidence and seek to resolve any genuine issue before deciding on further recovery action.

What is the Fair Payment Code?

The Fair Payment Code is a UK Government backed initiative administered by the Office of the Small Business Commissioner. It replaced the Prompt Payment Code and recognises businesses that demonstrate fair and timely payment practices.

Has the law on late payments changed in 2026?

The Government has introduced the Commercial Payments Bill, which proposes significant changes to commercial payment terms and late payment rules. However, as of September 2026, the Bill has not yet become law.

Don’t let overdue invoices become a permanent part of your cash flow

Chasing unpaid invoices can take time away from the people who should be focused on running and growing your business.

If an invoice has passed its due date and repeated attempts to secure payment have not worked, professional commercial debt recovery can provide another route forward.

At Paragon Credit Management, we help UK businesses recover overdue commercial invoices on a no win, no fee basis.

We take a professional, structured and ethical approach to recovery, with legal escalation and further recovery options available where required.

If you have overdue commercial invoices that need attention, get in touch with Paragon Credit Management to discuss how we can help.

This article provides general information about UK commercial late payment rules and is not legal advice. Legislation and guidance can change, particularly while the Commercial Payments Bill progresses through Parliament. Businesses should obtain appropriate legal advice where necessary and check the latest official guidance before taking action.