UK 60-Day Payment Cap: Impact on Invoice Finance and WC
The UK Late Payment Reform package introduces a mandatory 60-day cap on B2B payment terms backed by the Small Business Commissioner with formal enforcement powers, alongside the long-standing statutory right to interest at 8 percent over Bank of England base rate plus a fixed compensation sum per overdue invoice. This guide covers the rules in practice, what the 60-day cap means for invoice-finance and working-capital underwriting at UK SMB lenders, and how to use the regime alongside borrowing rather than instead of it.
Director, BestBusinessLoans
Oliver leads BestBusinessLoans's editorial reviews and methodology. With a background in UK commercial finance, he oversees lender research, rate verification and review independence.
Last reviewed: 10 May 2026
What the Late Payment Reform actually changes
Three layers of UK statutory protection now apply to B2B payments. The Late Payment of Commercial Debts (Interest) Act 1998 still gives a supplier the statutory right to interest at 8 percentage points over Bank of England base rate (so 11.75 percent at the May 2026 base rate of 3.75 percent) on overdue commercial invoices, plus a fixed compensation sum (£40 to £100 per invoice depending on debt size) and reasonable recovery costs. The Reporting on Payment Practices and Performance Regulations 2017 require larger businesses to publish payment-terms data twice a year. The new Late Payment Reform layer adds a mandatory 60-day cap on B2B payment terms (with limited exceptions) and gives the Small Business Commissioner enhanced enforcement powers including the ability to investigate suspected breaches and impose corrective orders. The cap and enforcement powers are the new piece; the statutory interest rights pre-date the reform and continue.
How UK SMB lenders are reading the cap
Invoice-finance lenders (MarketInvoice, Bibby Financial Services, Time Finance, Aldermore Invoice Finance) underwrite against debtor-book quality including average debtor days. The 60-day cap tightens worst-case debtor days, which improves the underlying risk profile of a typical SMB book. In practice this means slightly higher advance rates against eligible debtors and slightly lower service-fee bands for businesses whose debtor book sits comfortably inside the 60-day cap. Term-loan lenders (Funding Circle, iwoca, Allica Bank) read the reform as a working-capital-cycle improver: shorter payment terms across the SMB ecosystem reduce the working-capital gap that term loans typically fund, but the absolute borrowing requirement does not disappear because growing SMBs still need to fund the gap between cost-out and cash-in.
Statutory interest as a working-capital tool
Statutory interest at base plus 8 percent (11.75 percent at May 2026) plus £40 to £100 per invoice plus reasonable recovery costs is a meaningful number on a chronic late-payer book. A small business chasing £50,000 of invoices that have been overdue for an average 45 days past the contractual due date can claim approximately £719 in statutory interest plus £400 to £1,000 in fixed compensation plus collection costs. Most UK SMBs do not exercise the statutory right because they fear losing the customer; in practice well-handled statutory-interest claims often improve payment behaviour without ending the relationship. Lenders read consistent statutory-interest collection as evidence of credit-control discipline, which feeds into invoice-finance underwriting in a positive way.
Where the 60-day cap does not bite
The cap has limited statutory exceptions. Construction-industry payments under the Construction Act 1996 retain their separate regime including stage-payment rules. Public-sector contracts have their own 30-day prompt-payment regime under the Procurement Act 2023 which is shorter than the 60-day cap. International B2B contracts where the parties have agreed a foreign governing law fall outside the UK statutory regime entirely. Existing contracts written before the cap commenced are subject to transitional provisions: they are not retrospectively voided, but renewals and material amendments fall under the cap. Most UK SMB invoice-finance and working-capital underwriting focuses on the vast majority of B2B receivables that do sit inside the cap.
Practical compliance and enforcement steps
Three practical steps for SMB suppliers. First, audit current contracts: identify any payment terms above 60 days that need renegotiation at next renewal. Second, build statutory interest into the credit-control process: include the right to charge statutory interest on every overdue notice, even where you choose not to pursue it. Third, register with the Small Business Commissioner: the SBC publishes name-and-shame data on persistently slow payers and provides a low-cost dispute-resolution route. For SMB buyers, the same audit applies in reverse: review supplier contracts for compliance, build the cap into procurement processes and ensure the finance team can evidence compliance under SBC investigation. The SBC has used its enforcement powers on a small number of test cases since the reform commenced; the corrective-order regime is genuine.
Working-capital implications and the financing decision
Reduced average debtor days improves the cashflow profile of a typical SMB book. Two practical implications for the financing decision. First, businesses that have been holding excess working-capital headroom because of historical late-payment patterns can release some of that headroom; the cap reduces the buffer required. Second, businesses that have been borrowing to fund the working-capital gap can re-test the borrowing requirement against post-reform debtor-day patterns. Some businesses find their term-loan ticket size needs to be smaller; others find their invoice-finance facility could be replaced by a smaller revolving credit. The reform does not eliminate working-capital borrowing but it does change the size and shape of the typical SMB requirement. Use the loan-affordability calculator alongside the new debtor-day pattern to right-size the facility.
FAQ
When did the 60-day cap commence?
The cap commenced via the Late Payment Reform package as it came into force in 2026. Existing contracts written before commencement have transitional protections; the cap applies to new contracts and to material amendments or renewals of existing contracts. Confirm the exact commencement schedule with the Department for Business and Trade or the Small Business Commissioner; the regime is being implemented in tranches.
What if my customer demands payment terms above 60 days?
The cap is mandatory with limited statutory exceptions. A B2B customer cannot enforce payment terms above 60 days unless the contract falls within an exception (construction-industry, certain international contracts, narrow agreed extensions for specified circumstances). A supplier that has agreed terms above 60 days under pressure can challenge the term as unenforceable and claim statutory interest from the date 60 days after delivery.
Does the 8 percent statutory interest apply automatically?
The right is automatic but is not charged automatically. The supplier needs to invoice the statutory interest plus fixed compensation and recovery costs. Most credit-control systems can build this into the standard overdue-notice template. The right exists from the date the invoice becomes overdue; the supplier can claim retrospectively up to 6 years.
Will the cap reduce my invoice-finance facility size?
Possibly. Invoice-finance lenders advance against eligible debtors. Shorter average debtor days mean each pound of receivables generates less average drawn balance because the receivable rolls off the book faster. Total facility headroom may be unchanged or slightly higher (because more debtors qualify) but the average drawn balance can fall. Speak to the lender before assuming the facility size needs to change.
Does the cap affect early-payment discount practices?
No. Early-payment discounts are a commercial agreement between supplier and buyer and sit outside the late-payment regime. A supplier can still offer a 2.5 percent discount for payment in 7 days against contractual terms of 30 or 60 days. The reform does not require or prohibit early-payment discount; it only caps the worst-case payment term.
Can I waive the cap by mutual agreement?
Limited. Statutory exceptions allow agreed extensions in specific circumstances. The general position is that contractual terms above 60 days are not enforceable against the cap-protected party even with mutual agreement. The Small Business Commissioner can investigate suspected attempts to circumvent the cap by structuring the contract around it.
Does the reform apply to receivables I sell to an invoice-finance lender?
Yes in principle. The underlying B2B receivable is subject to the cap regardless of who currently owns the receivable. Invoice-finance lenders factor this into their underwriting; the cap protection adds a layer of certainty to the receivable's collection profile.
Reviewed by Oliver Mackman, Director. Last reviewed: 2026-05-10.