Are you prepared for the forthcoming changes on prompt payment terms for public tendering in the UK?

Among the measures Rachel Reeves announced in her budget was that, from October 2025, companies must report average payment days of 45 or fewer in either of the two previous six-month reporting periods and continue to meet the existing requirement to pay 95% (90% with an action plan) of invoices within 60 days. If a company does not meet this measure, it will not meet the conditions to participate in procurements for central government contracts worth over £5m.

Two measures

At present, contracting authorities are only required to ask questions about supplier payment times, with no specific consequences for suppliers if they fall below the targets.

Suppliers to central government are asked to report on two measures.  

First, the percentage of payments and invoices paid to their immediate supply chain within:

• 30 days;
• 31 to 60 days;
• 61 days or more; or
• due, but not paid by the last date for payment under agreed contractual terms.

These figures are required for the last two six-month reporting periods. Where a supplier is not able to demonstrate that all invoices have been paid within contractual terms, this must be explained.  An action plan for improvement is also required where ≥95% of invoices to supply chain on all contracts have not been paid within 60 days of receipt in at least one of the two previous six-month reporting periods.

The second measure is the average number of days taken to pay invoices to those in the immediate supply chain on all contracts in each of the two previous six-month reporting periods. Currently, this figure must be 55 days or fewer for those suppliers tendering to central government bodies for larger contracts (£5m+).

In both cases, these figures reference all the supplier's contracts – including those with private sector entities.

Osborne Clarke comment

This announcement creates a new and direct link between two previously separate areas of the public procurement regime – prompt payment and not meeting a pass/fail criteria for being able to participate in procurements for central government contracts worth over £5m.

At present, the prompt payment requirements on suppliers (rather than contracting authorities) are not statutory, but take effect only though guidance. It is not clear from the announcement how the obligations will be placed on a statutory footing – we suggest it may be through secondary legislation under the Procurement Act 2023.

The additional "stick" of potential exclusion from bidding for highly valuable public sector contracts creates a powerful incentive to meet these demanding terms, though in no way decreases the challenge to many businesses of doing so.

As the measure tracks average payment times over the two previous six-month periods, current payment periods will be among the first scrutinised and suppliers should therefore focus on these changes as early as possible to implement any changes needed.