UK Payment Practices: Proposed Changes and Implications for the Supply Chain Finance (SCF) Landscape

Late payments have long been a pressure point in supply chains, particularly for SMEs operating with limited liquidity buffers. Taking this into consideration the UK government is moving to strengthen the regulatory framework governing payment practices. They have implemented a series of measures to reduce late payment terms with the aim to create what the Department for Business and Trade describes as “the strongest legal framework on late payments in the G7,” targeting extended payment terms while increasing transparency and enforcement.

A key mechanism to achieve this going forwards will be enhanced reporting and board level visibility of payment practices. The existing payment reporting directive therefore has been extended to 2031 and expanded through the introduction of a new director’s report for large corporates. It includes the following base parameters:

• the standard contractual length of time for payment of invoices to suppliers
• any changes to the standard payment terms in the reporting period
• how suppliers have been notified or consulted on these changes

This “directors’ report” disclosure is in force since January 1^st, 2026, and is to be provided on an annual basis. The pre 2026 requirement was to provide reporting of payment metrics twice annually and upload them via a government portal.

More importantly in the context of SCF is how the involvement of finance providers is treated for payment reporting purposes. Previously, buyers could report adherence to contractual payment terms where suppliers were offered access to early payment, even if the buyer’s cash outflow occurred at a later stage.

Under the explanatory memorandum “The reporting on payment practices and performance (amendment) regulations 2024”, the treatment of financing by a third party depends on whether the supplier bears any financing cost. Where a supplier receives the full invoice amount without paying a fee or having any deduction applied, the payment date is recorded as the date the supplier receives funds. However, where the supplier bears a financing cost, the payment date is instead recorded as the date the buyer settles payment with the finance provider.

As a result, SCF structures where suppliers pay a discounting fee will continue to reflect the buyer’s actual cash outflow timing in reported payment terms, regardless of when the suppliers receive funds. Although this clarification was published in 2024, its practical impact will become visible as corporates begin reporting 2025 payment data. This change materially increases the importance of accurate reporting and enforcement of payment practices.

The Small Business Commissioner (SBC), who previously had limited enforcement powers, will now be provided with additional powers to enforce proposed measures. They will be given the power to carry out spot checks of reporting data, provide arbitration when there are payment disputes and impose financial penalties if the rules are not adhered to.

The government’s aim is to enforce a cap on payment terms at 60 days with a potential step down to 45 days in a second phase. Public sector procurement rules embed a 30-day payment term in public supply chains and crucially where these payment terms are not met on larger public contracts the risk is that a corporate will be disqualified as supplier to that specific government contract.

The fact that payment behaviour in future will be flagged at board level will mean more scrutiny of whether payment terms are in line with government guidance. The current process is still in consultation phase which was closed in October 2025; however, an updated response and guidance is expected imminently. This will reconfirm the future approach taken by the UK government and provide indicative timing, when legislation is to be enacted. However, regardless of the future proposed timeline to enact the legislation, the UK is certainly moving to a more restrictive payment term regulation. 

Practical implications for Supply Chain Finance

In the future corporates offering SCF to their suppliers will need to weigh working capital benefits against new governance and disclosure requirements. As a result, it will be critical to demonstrate a clear audit trail covering invoice receipt, dispute handling and payment execution dates. Moreover, corporates will need to able to explain, how their payment terms align with government regulations to auditors and the board.

The direction of travel hence suggests that the market will reward solutions that simplify the payment journey and make payment terms easier to evidence, report and govern. This includes minimising operational friction, reducing complexity when setting up programmes and ensure oversight of payment terms across procurement and treasury.

Approaches that rely on complex contractual renegotiation or repeated supplier engagement are likely to be more difficult to implement, whereas structures that preserve control, transparency and optionality are better aligned with the regulatory and governance environment emerging in the UK.