New Late Payment Rules Aim to Help Businesses—But Do They Go Far Enough?
B2B Payments expert Inez Berkhof-Hollander explains why the government’s stance on late payments is a welcome and necessary move for UK businesses, as reliable, timely payments are the backbone of a healthy B2B ecosystem, but stresses there is more to the story
In what is being called the biggest shake-up in payment rules since firms gained powers to charge interest on late invoices in the 1990s, the UK Government is proposing that, by law, UK invoice terms should be no more than a maximum of two months—and be 45 days within five years.
The proposal comes as no surprise, says Business Secretary Jonathan Reynolds, given around 1.5m businesses have been affected by late payments. At any one time, UK Plc is collectively owed a staggering £26bn of unpaid bills.
The issue is particularly acute for smaller firms, the Department for Business and Trade notes, as they typically operate with limited cash reserves and lose valuable time chasing overdue payments. It’s a significant concern for business owners more broadly, especially amid rising National Insurance contributions and other external pressures. In the US, for instance, a recent American Express survey of 1,000 businesses found that 26% had cut ties with a buyer or supplier due to payment delays, while 91% agreed that fast, secure payments are essential for business growth.
These proposals are welcome and long overdue. While timely, reliable payments are the backbone of a healthy B2B ecosystem, impact cannot be fully realized unless paired with a broader push for digitisation across UK businesses.
The focus must be on reducing friction and making the invoicing and payment process as seamless as possible. The ideal outcome is stronger enforcement measures combined with a smarter, nationally supported billing and payments infrastructure.
How suboptimal payment processes impact buyers and sellers
Every day, I work with clients who feel the impact of delayed payments on cash flow, growth, and the resilience of supply chains. But in conversations with CEOs and CFOs, it’s clear late payments are not always due to an unwillingness to pay. Often, the root causes lie in operational inefficiencies on the seller side: invoice errors, slow reconciliation processes, or friction in cross-border transactions that delay settlement.
Rather than waiting for potential regulatory changes, or a possible UK move to follow the EU in adopting e-invoicing as standard, businesses have an opportunity to take a hard look at their order-to-cash processes and modernise where necessary. For large enterprises processing thousands of invoices daily, suppliers who can meet specific invoicing requirements, such as checking PO policies, listing SKUs, converting currencies, and who can integrate directly with their ERP systems are significantly more likely to be paid on time.
That’s the essence of reducing friction: making it as seamless as possible for customers to pay, and for businesses to receive payment, on time, every time.
Flexibility is essential. Building a loyal base of B2B buyers begins with offering a broader range of payment options. According to research we conducted in partnership with Murphy Research, 83% of global business buyers view diverse payment choices with a vendor as critical. By implementing digital trade credit, automated invoicing, and configurable payment terms, businesses can reduce Days Sales Outstanding (DSO) to as little as two days, but also maintain compliance and foster stronger buyer loyalty.
B2B trade is about the trust a buyer places in a seller
This is why digital must be central to your payments strategy. Fully transparent digital invoicing has the potential to significantly enhance e-commerce and overall business performance. At its core, B2B trade is founded on the trust a buyer places in a seller, and that trust influences purchasing decisions, whether based on price, quality, or other factors.
Put simply, buyers prefer to engage with sellers they trust and who support them with their cash flow needs. When an invoice’s format and delivery are clear and predictable, buyers gain a level of transparency previously unavailable. Combined with a clearer cash flow pipeline and adequate payment terms, this transparency provides both parties with a consistent invoicing format and a defined delivery channel, substantially simplifying the payment process.
This level playing field is exactly what UK Plc should strive for. To adapt to potential e-invoicing mandates and changes in payment terms, they need time, resources, expert guidance, and robust IT support.
Starting preparations now presents a real opportunity to fundamentally upgrade how firms manage their cash flow. Who knows how many other B2B process improvements across the UK’s business landscape could be unlocked in the process.