Late payment still drains time, money and headspace for UK small and medium-sized enterprises (SMEs). The new late-payment rules – a mix of measures already live and proposals now progressing – are designed to cut delays, sharpen transparency and make big buyers take supplier payment more seriously.
Why this matters now
Government-commissioned research estimates late payment costs the economy about £11bn a year, with small businesses spending an average of 86 hours annually chasing debt and 38 businesses closing every day due to overdue invoices (Department for Business and Trade, 2025). At the same time, public procurement rules have shifted to hard 30-day terms across the supply chain and reporting thresholds are changing from April 2025, pulling more companies into disclosure (gov.uk, 2025).
In this piece, we explain what has changed, what’s proposed and how to use the new late-payment rules to tighten credit control, payment terms and your Xero workflows.
What’s already in force
Public-sector procurement has moved decisively. From 24 February 2025, public contracts must include 30-day payment terms down the supply chain – implied in contracts even if not written – and invoices should be paid within 30 days of receipt, not after validation. If you sell into the public sector, you should expect faster cash, and you should mirror this in your subcontracts and purchase orders to avoid mismatches that trap cash.
For larger private companies, the reporting on payment practices regime continues, but the thresholds that decide who must report change from 6 April 2025 because the definition of “medium-sized” companies is moving. That will bring some new reporters into scope and push others out; it’s worth checking where your major customers land so you can benchmark their disclosures against your terms (gov.uk, 2025).
Finally, the Fair Payment Code – which replaced the Prompt Payment Code in 2024 – continues to encourage better behaviour, with bronze/silver/gold tiers and public recognition. If a large customer claims high standards, check their standing and hold them to it (Companies House, 2025).
What’s proposed next under the new late-payment rules
The government’s late-payments consultation (launched on 30 July 2025) signals tougher steps. Proposals include: maximum payment terms set initially at 60 days, then reducing to 45 days; stronger transparency in annual reports; audit committee oversight; earlier deadlines to dispute invoices; and new enforcement powers for the Small Business Commissioner, including spot checks. These proposals are subject to consultation and legislation – but direction of travel is clear. Plan as if shorter terms will become the norm for large buyers, and document your processes to prove invoice quality and delivery.
Practical steps to secure faster cash
Start with first principles: remove excuses, shorten the cycle and escalate early. Here’s how to use the new late-payment rules to your advantage.
- Terms and onboarding: Tight, fair terms get results.
- Credit checks: Use trade references and public filings, then set sensible limits.
- Invoice quality: Issue clean, PO-matched invoices with the right coding and delivery evidence.
- Disputes: Set a clear 7- to 10-day window for raising disputes – log and resolve quickly.
- Interest and costs: Reference the Late Payment of Commercial Debts legislation to support your position.
- Escalation: Escalate on day 31 where public contracts apply, or per agreed terms elsewhere – do not drift.
In Xero, aim for frictionless hand-offs between sales, delivery and finance. Use branding themes for large customers that mandate POs, attach proofs automatically and push e-invoices where accepted. Set invoice reminders that build from polite nudges to firm statements. For government customers or prime contractors, flag “30-day by receipt” in your invoice template and notes.
Using data and reporting to negotiate
Transparency rules are your ally. If a large customer must publish payment performance, download their last report and compare it to your experience. Persistent deviation – for example, paying you in 60 days while reporting a median of 33 – is a red flag. If proposals to hard-cap terms at 60 days then 45 days proceed, align your standard terms and renegotiate headroom now (gov.uk, 2025).
Keep an eye on the wider picture too. Office for National Statistics (ONS) business condition updates and Office for Budget Responsibility (OBR) commentary on financing pressures help explain buyer behaviour and support conversations on realistic, shorter terms during periods of tight liquidity (ONS, 2025; OBR, 2025). Use this context to push for deposits or staged payments on bigger jobs.
Example playbook: SMEs selling to larger customers
Before the first order, attend to the following.
- Onboarding pack: One-page PDF with bank details, contact points and invoice rules.
- Standard terms: 30 days from receipt; PO required; disputes within seven days.
- Deposits: For bespoke work, 40% upfront – or staged 30/40/30 with milestones.
At invoice, do the following.
- PO match: Validate PO and line items.
- Delivery proof: Attach acceptance, timesheets or delivery notes.
- E-invoicing: Send via e-invoicing where available; otherwise email plus portal upload.
The chasing cadence should proceed as follows.
- Day 7 reminder: Friendly check that the invoice has landed and is queued.
- Day 21 reminder: Confirmation that there are no disputes; request scheduled pay date.
- Day 31 step-up: If public sector or flow-down terms apply, cite the 30-day rule. Otherwise, restate contract terms and interest entitlement.
- Day 38 hand-off: Escalate to accounts payable manager and project sponsor; propose payment plan if needed.
Xero workflow tweaks that make a difference
Contacts and credit limits: Set credit limits per customer and add notes on required attachments or portals.
Reminders: Schedule three reminders – at seven, 21 and 31 days – with firm wording and a clear “pay now” link.
Approvals: Use two-stage approval for invoices over a set threshold to avoid rework.
Shortcuts: Create a “dispute” custom status; filter and resolve these daily.
Reporting: Add a dashboard tile for average days to pay by customer and a saved report for invoices >30 days overdue. Review weekly.
If you’d like help setting this up, see how we work and get in touch. We can review your terms and build a credit control process that fits your sector and sales cycle.
Risks and where SMEs get tripped up
The new late-payment rules won’t help if documentation is weak or delivery sign-off is patchy. Buyers can still delay under the guise of disputes, or set portals that reject invoices at the last hurdle. Typical pitfalls include the following.
- Vague statements of work (SOWs): Ambiguous milestones invite disputes – define outputs and acceptance.
- Portal errors: Missing PO lines or coding lead to auto-rejections.
- Sales-finance gap: Handovers fail and invoices miss key details.
- Over-reliance on one buyer: Terms creep out from 30 to 60–90 days; cashflow tightens.
Mitigate by tightening SOWs, training the team on portal rules, and watching customer concentration. If you need support, we offer practical help adapting to new late-payment rules and improving cash collection – speak to us.
Bringing it together – and what to do next
Late payment is systemic, but the policy tide is turning – 30-day terms now apply through public-sector supply chains, reporting thresholds change from 6 April 2025, and government proposals point to shorter maximum terms and stronger enforcement. The data backs decisive action: late payment costs around £11bn annually, consumes 86 hours of staff time per affected business and contributes to closures.
Our recommendation: use the new late-payment rules as leverage to reset terms, clean up onboarding and automate chasing. Tighten your Xero setup, review your largest customers’ reporting and agree escalation steps now. If you want a hands-on review of contracts, processes and Xero, book a cashflow and credit control review – we’ll help you implement changes that get invoices paid faster and protect working capital.
Speak to our team about new late-payment rules and cashflow improvement today.