Changes in SME payment practices reporting and compliance

What businesses need to do now

The UK Government has confirmed plans to introduce legislation to strengthen protections for small and medium-sized enterprises (SMEs). This significant shift in its approach to late payments was included in the King’s Speech on 13 May 2026.

The direction of travel is clear: late payment practices are becoming a matter of enforceable obligation. Businesses must now assess whether their current procurement and payment processes can meet these emerging requirements which now go beyond policy.
 

New payment practices: legislative requirements on the horizon

The proposed legislation will require large businesses to pay SME suppliers within 60 days. Companies that fail to comply may face fines or mandatory interest payments set at 8% above the Bank of England base rate. The new legislation follows the Government’s “Late Payment Consultation: Time to Pay Up”.

The Government confirmed these measures are expected to be progressed through the Small Business Protections (Late Payments) Bill and they are expected to become a non-waivable provision, limiting the ability of organisations to exclude or dilute late payment penalties through contractual terms. Over time, the Government may reduce the maximum payment period further to 45 days.

The Small Business Commissioner is expected to have the ability to investigate, penalise and publicly scrutinise persistent late payers, a significantly expanded role in compliance enforcement. Organisations may also need to formally explain payment delays to their boards and audit committees.
 

Increased payment practices: reporting and compliance expectations

These reforms build on recent regulatory changes introduced in October 2025, which require companies to report annually on their supplier payment performance within directors’ reports.

In addition, suppliers bidding for government contracts above £5 million must demonstrate that they pay at least 95% of suppliers within 60 days.
 

What the new payment practices legislation means for your business

These requirements would have a direct impact on procurement and purchase-to-pay processes, approvals and dispute processes for supplier management. Many organisations currently operate on 30-, 45-, 60-, 75-, or 90-day payment terms. Identifying the SME suppliers affected and shortening payment cycles is expected to require significant operational change.

Organisations’ liquidity and cash flow management would also be impacted, especially where current models rely on extended payment cycles. This legislation is expected to limit the extent to which businesses use extended payment terms as a working capital lever across their supply base. This is likely to reduce the reliance on supplier-led financing models and may place immediate pressure on cash flow.

Existing contractual protections, including longer payment periods or the absence of late payment penalties, may no longer be enforceable, requiring a reassessment of supplier agreements.
 

Key areas to review

Businesses should consider several critical areas including:

• Supplier segmentation: ensure your systems clearly identify SME suppliers and categorise them correctly
• Maverick spend: reduce off-contract purchasing that delays invoice processing and payment cycles
• Tail-end spend: improve visibility and control over low-value transactions and supplier volumes
• Purchase-to-pay processes: streamline workflows to eliminate delays and ensure timely payment approvals

If passed, this new legislation will heighten the need for finance, procurement and legal functions within an organisation work together to assess and respond to the changes.
 

Strategic considerations

The proposed changes raise broader strategic questions for leadership teams, including how payment practices are used within a wider commercial and financial context. Many organisations may choose to redefine how they engage with SME suppliers, including reviewing sourcing strategies, supplier commitments and broader third-party spend management.
 

How organisations are responding

Organisations are already beginning to assess how best to respond to these proposed changes by focusing on the following areas:

• Strategic sourcing and supplier optimisation
• Purchase-to-pay transformation
• Procurement maturity assessments
• Diversity in the supply chain
• Commercial contract negotiations and cost leakage management.

Organisations that begin assessing and adapting now will be better placed to manage both the compliance and commercial implications of these changes.
 

How we can help you with the changes to payment practices regulations

Our Commercial Advisory practice provides end-to-end supply chain services, including procurement, contract management and supply chain support. We are already working with clients on preparing for these legislative changes. We would be delighted to talk to you about the challenges you face and how we can help. Please contact a member of the team. We look forward to talking to you.