Better payment terms without damaging supplier relationships

For years the quickest working capital win was a letter to suppliers announcing new terms and it worked on paper. PwC's Working Capital Study 25/26 shows global days payable outstanding up 11.5% since 2015. The UK went the other way: the study attributes part of the near 50% rise in UK net working capital days to a recent fall in payables days.

That letter is about to get much harder to send.

What has changed since 2025

In July 2025 the government opened a consultation on late payment as part of its small business plan. It ran to 23 October 2025 and drew 867 responses. The Department for Business and Trade's case was blunt: late payments cost the UK economy around £11 billion a year and close 38 businesses every day.

The response, "Time to pay up", followed in March 2026. Its main decisions:

• A 60-day cap on commercial payment terms, starting no earlier than 2027. Exemptions apply where both parties are large companies, where the buyer is the smaller party, and for imported or exported goods.
• Statutory interest at 8% above Bank of England base rate becomes compulsory. Contracts can no longer swap it for a weaker remedy.
• A deadline for raising invoice disputes, with compensation where the deadline is missed.
• New powers for the Small Business Commissioner to investigate, adjudicate disputes and fine persistent late payers, with fines linked to unpaid statutory interest.
• Large companies must report statutory interest owed and paid, and boards or audit committees of persistent late payers must publish commentary on GOV.UK explaining the problem and the fix.

The Commercial Payments Bill carrying these measures started in the House of Lords and was brought to the Commons in October 2026. As drafted, public authorities face a 30-day limit, and buyers must raise disputes at least eight days before the payment date or interest keeps running regardless of the merits. Details may still move before Royal Assent.

Even the reporting had tightened up. Amendments to the payment practices reporting regulations apply to financial years starting on or after 1 April 2025, adding retention reporting for construction contracts. All companies which exceed two of the three thresholds: £54m turnover, £27m balance sheet or 250 employees, are in scope.

What it means for your terms

If you are a mid-sized buyer dealing mostly with smaller suppliers, the cap applies to you. Any term above 60 days in those contracts will be void once the law commences. If you are in scope for reporting, your payment record becomes a board matter, published under your name.

So the old route to better payables is closing. The useful question is what you can still do that suppliers will accept, and often welcome.

Trades that suppliers say yes to

Pay on time at the terms you have. A buyer on 60 days who pays on day 60 is a better customer than one on 90 who pays on day 110. Most of the gap between agreed and actual terms sits in invoice approval, goods receipt matching and disputes raised late. Fixing that releases no cash on day one, but it buys the goodwill you need for every other conversation.

Move the trigger, not the term. Payment periods start from defined events. Agreeing that the clock starts at a clean, matched invoice rather than at dispatch is legitimate, provided it's written down and applied consistently.

Offer certainty in exchange. A supplier will often accept longer terms within the cap, or hold stock for you, in return for a firm volume commitment, a shared rolling forecast or a longer contract. These cost you very little if your demand planning is decent.

Use consignment for high-value, predictable lines. You pay on consumption, the supplier gets guaranteed offtake and earlier visibility. It needs good stock records on both sides.

Price early payment properly. An illustrative example: a 2% discount for paying 50 days early is worth roughly 15% a year. With Bank Rate held at 3.75% in September 2026, a buyer with spare cash or cheap facilities can earn more by paying early than by holding cash, and the supplier gets liquidity at a price it chose.

Where relationships break

They break when terms are imposed by letter, when the letter arrives from finance with no warning to the buyers who manage the relationship, and when the business that demanded 120 days then pays late anyway. Small suppliers talk to each other. A reputation as a slow payer shows up later as higher prices, lower priority on allocation and suppliers who stop bidding.

Segment before you negotiate. Separate strategic and hard-to-replace suppliers from commodity ones, and separate large suppliers, where the exemption may apply, from small ones, where it won't. Then decide what you are offering each group, not only what you are asking for.

Recently, for a client in the micro irrigation sector, a key supplier agreed to move from 30 to 60 day terms when we offered a twelve-month rolling forecast and a committed minimum volume. For them, predictability was worth more than the cash. It cost our client some flexibility on volume, which we agreed was a fair price.

Finally, check your own record before a supplier, or the Small Business Commissioner, does it for you. Pull actual days to pay by supplier size for the last two reporting periods. If the numbers would embarrass the board in public, start there.

BankStreet Partners helps finance teams rework supplier terms and working capital within the new rules, and our free Payment Terms Impact tool shows what a change in terms is worth to you and what it costs your suppliers.