Payment Terms Legislation In United Kingdom

The Late Payment of Commercial Debts (Interest) Act 1998, Section 4, was amended in 2013 to enact a maximum term of 30 days for public authority payments and 60 days for commercial terms, unless expressly agreed by both parties and not grossly unfair. Where no terms are specified in the contract the term is 30 days. Compensation for recovery costs is also provided.

Section 110 of the Housing Grants, Construction and Regeneration Act 1996 applies the ‘Scheme for Construction Contracts’ where a construction contract fails to provide a payment term. The scheme terms are 7, 17 and 30 days depending on the type of payment.

The UK government’s prompt payment policy (PPN 018) requires all organisations bidding for government contracts over £5 million per annum to pay their suppliers within an average of 45 days and 95% of invoices within 60 days. From 1 October 2025, non-compliant bidders are excluded from procurement. From 24 February 2025, the Procurement Act mandates 30-day payment terms in all public contracts. Government departments must also conduct spot checks on contracts over £5m to ensure subcontractors are paid within 30 days.

The UK government requires larger companies and limited liability partnerships to report on their payment practices and performance. Reporting requirements were enhanced in 2024-2025 to include the total value of invoices paid within 30 days, 31-60 days, and 61+ days, as well as the total sum of late payments and reporting on retention clauses in construction contracts. A government consultation in 2025 proposed further reforms including fining powers for the Small Business Commissioner.

The Network Rail Fair Payment Charter by the Commercial Directors Forum for the rail industry commits to terms between 21 and 28 days.

The Fair Payment Code, launched in December 2024 by the Small Business Commissioner, replaced the previous Prompt Payment Code. It is a voluntary tiered system: Gold Award holders pay at least 95% of invoices within 30 days; Silver Award holders pay 95% within 60 days (including 95% to small businesses within 30 days); Bronze Award holders pay 95% within 60 days. Awards last two years and include a complaints procedure through the Office of the Small Business Commissioner.

The Construction Supply Chain Payment Charter was launched in 2014 promoting standard payment terms of 30 days from the end of the month of completion. The Charter has been officially withdrawn by the UK government, superseded by formal payment reporting regulations and the prompt payment policy for government contracts.

The statutory interest rate for late payment of commercial transactions is the Bank of England base rate plus 8%.

Procurement Act 2023: from 1 October 2025, s.69 requires contracting authorities to publish Payment Compliance Notices. PPN 021 authorises spot-checks on prime contractors’ sub-contract payment records to verify supply chain compliance.