The 60-Day Payment Term Problem: Should SMEs Review Customer Contracts Now?

If your business is currently sitting on contracts that allow customers 60 days or more to pay, you may be carrying far more financial risk than you realise. Extended payment terms have become normalised across many UK industries, but normalised does not mean acceptable, and it certainly does not mean you have to keep accepting them.

With late payment reform moving up the UK business agenda, stronger scrutiny of large company payment practices, and ongoing pressure on SME cash flow, now is a sensible time to look hard at what your customer contracts actually say.

Late payment remains one of the biggest barriers to small business growth in the UK. When you factor in that many businesses are not only paying late but are doing so against a 60-day or even 90-day baseline, the true scale of the problem becomes clear. Getting paid 30 days after a 60-day term has already expired means you may be waiting three months or more from the date work was completed. That is a significant amount of working capital tied up in someone else’s hands.

Why 60-Day Terms Became So Common

The rise of extended payment terms is not accidental. Larger businesses have long used their purchasing power to push terms out as far as possible, effectively using their supplier base as an interest-free source of short-term financing. For many SMEs, accepting these terms felt like the only way to win and keep the contract.

The problem is that this dynamic is deeply unbalanced. Large businesses with strong treasury functions and credit facilities can absorb extended terms with relative ease. Smaller suppliers operating on tighter margins cannot, and yet they are often the ones being asked to wait.

The UK government has been aware of this imbalance for years. The old Prompt Payment Code has now been replaced by the Fair Payment Code, which encourages businesses to commit to fairer payment practices, including paying within 30 days at the highest award level. The government has also confirmed plans to strengthen late payment rules, including a 60-day cap on payment terms for large businesses paying smaller suppliers and stronger powers for the Small Business Commissioner.

Until those reforms fully take effect, your contracts remain your first and most important line of defence.

What The Law Currently Says About Payment Terms

Under the Late Payment of Commercial Debts (Interest) Act 1998, statutory payment rules apply to qualifying business-to-business contracts. If there is no agreed payment date, the statutory period is usually 30 days. For private sector commercial contracts, longer payment terms can be agreed, but they must not be grossly unfair to the supplier.

In practical terms, if your contract clearly specifies 60-day terms and the customer pays on day 60, they may have complied with the contract. The issue is that many businesses do not even manage to do that, meaning you are chasing payment well beyond terms you already conceded.

Understanding what the Late Payment of Commercial Debts Act covers in terms of interest and fixed fee compensation is essential before you start renegotiating any contracts. Knowing your rights gives you confidence in those conversations.

The Real Cost Of Accepting Long Payment Terms

Here is a simplified example of how 60-day terms can affect a typical SME:

That difference in working capital tied up in debtors is money that could be covering supplier payments, wages, tax bills, or growth investment. The numbers show exactly why business cashflow problems are so directly linked to the payment terms you agree to in the first place.

Should You Renegotiate Your Contracts?

The short answer is yes, in most cases. But how you do it matters enormously, because you need to protect the commercial relationship while also standing your ground.

Start With New Customers

The easiest time to set shorter payment terms is before a contract is signed, not after. If you are onboarding new clients, make 30-day terms your standard position and only deviate from that with a clear business reason.

A good credit checking service run before you extend credit will also help you assess whether the customer is a reliable payer before you commit to any terms at all.

Review Existing Contracts At Renewal

For existing customers, contract renewal is your natural opportunity to renegotiate. If the relationship is healthy and you have been delivering good work, you are in a stronger position than you might think.

Frame it as a business review rather than a complaint. Explain that your terms are being updated across your customer base to support sustainable service delivery, not simply because one customer has caused an issue.

Use Contract Clauses To Protect Yourself

Even if you cannot bring a customer down from 60-day terms immediately, you can include clauses that give you more protection within those terms. Reading about contract clauses that reduce late payment is well worth your time before you sit down to renegotiate.

Key clauses to consider include retention of title, interest on late payment in line with the statutory rate, the right to suspend services if payment is overdue, and clear dispute notification deadlines. Also make sure you understand security options beyond personal guarantees if you are extending significant credit.

Know What You Can Claim Even With Long Terms

Even if you are stuck with 60-day terms for now, once that deadline passes and the customer still has not paid, you may be entitled to claim statutory interest on late payment at 8% above the Bank of England base rate, plus fixed compensation.

The fixed compensation depends on the size of the debt:

• £40 for debts up to £999.99
• £70 for debts from £1,000 to £9,999.99
• £100 for debts of £10,000 or more

Many SMEs do not claim this because they either do not know about it or feel awkward applying it. You should not treat it as unreasonable. It is a legal right designed to compensate suppliers for late commercial payment.

Practical Steps To Take Right Now

You do not need to overhaul everything at once, but doing nothing is not a strategy. Here is a sensible order of priorities:

• Audit your current customer contracts and note which ones have payment terms beyond 30 days
• Check your aged debtors list and see who is regularly paying late even within extended terms
• Set up proper aged debtors reporting that drives action so you can spot patterns quickly
• Prioritise renegotiation with customers who are both slow to pay and on the longest terms
• Make sure your invoices are correct and complete, because errors are the easiest excuse for a delayed payment. The ultimate checklist for making the perfect invoice is a useful reference here
• Use payment links for faster settlement to remove friction at the payment stage once terms are agreed
• Review your terms and conditions as a document in their own right. The guide to setting up your terms and conditions covers this clearly

When Long Terms Become A Warning Sign

There is a difference between a customer who negotiated 60-day terms in good faith and pays reliably within them, and a customer who insists on long terms and then still pays late. The latter is a much more serious situation and one you should act on quickly.

If a customer consistently pays beyond your agreed terms, starts raising disputes you have not heard before, ignores reminders, changes payment contacts repeatedly, or begins requesting payment plans, these are signs worth taking seriously.

Reading about how to recognise signs that you need a commercial debt collection agency urgently gives you a clear framework for identifying when a situation has moved beyond informal chasing.

A professional commercial debt recovery service can take over at the point where your internal team has exhausted its options. Having a specialist commercial debt collection agency handle the process formally and professionally also preserves your position if matters escalate further.

What To Do If A Customer Disputes The Invoice

Some debtors use disputes as a delay tactic, raising issues with the invoice at the point payment is due rather than at the point the work was delivered. You need to deal with these firmly and promptly.

The first step is to respond in writing, acknowledge the dispute, and request specific written details of what is being contested. Then address those points formally. If the dispute is genuine, it can usually be resolved quickly. If it appears to be a tactic, escalation to a commercial debt collection agency, or a formal letter before action debt process, may be the appropriate next step.

Understanding set-off and counterclaims in business debt recovery is also useful here, as some debtors will attempt to use counterclaims to reduce or eliminate what they owe.

If the situation becomes complex, disputed debt recovery is a specific area of expertise that a good collections agency can assist with.

Bridging The Gap: Finance Options If Cash Flow Is Already Under Pressure

If you are already feeling the strain of long payment terms and cannot wait for a cultural or legislative shift to fix things, there are practical financial options available.

Invoice factoring allows you to unlock a portion of the value of unpaid invoices sooner, rather than waiting 30, 60, or 90 days for the customer to pay. The exact amount advanced, the cost and the level of control you retain over customer relationships depend on the provider and product.

This is not a long-term substitute for fixing your payment terms, but it can be a useful bridge while you work through contract renegotiations. Businesses that find themselves under sustained pressure may also want to speak to a business turnaround service to look at the broader picture.

It is also worth speaking to outsourced credit control specialists who can manage the entire collections process on your behalf, from issuing invoices through to chasing payment, while you focus on delivering your services.

FAQs

Is it legal for a customer to insist on 60-day payment terms?

Yes, in many business-to-business contracts, the parties can agree payment terms. However, payment terms must not be grossly unfair to the supplier, and public sector rules are stricter. Public sector contracts generally require 30-day payment terms, including through relevant supply chains.

Can I change payment terms mid-contract?

Not unilaterally. You would need to agree any change in writing with the customer unless the contract already gives you a right to vary terms. However, you can raise it as a discussion and put your position on record, especially if the customer is repeatedly paying late.

What if a customer refuses to change the terms?

You then have a commercial decision to make about whether the contract is worth continuing on those terms. If the customer is a strong payer and the relationship is valuable, you may choose to accept the terms but manage them more actively. If they are also a late payer, that changes the calculation considerably.

Do 60-day terms affect my VAT cash flow?

Yes, they can. If you use standard VAT accounting, you normally account for VAT based on the invoice date, not the date you are paid. This can mean paying VAT to HMRC before your customer has settled the invoice. Cash Accounting can help eligible businesses because VAT is accounted for when payment is received. Bad debt relief on VAT may also be available where a debt is unpaid for at least six months and the conditions are met.

What should I do if the customer handles their payment terms through a purchasing portal that dictates the terms automatically?

This is increasingly common with larger corporations. Raise the issue formally in writing before signing up to the portal, and make it clear that your standard terms differ. You may not be able to change their system, but having a record of your objection and agreed terms helps protect your position if a dispute later arises.

It Is Time To Review What You Are Agreeing To

The 60-day payment term problem will not solve itself. While the government’s late payment reforms move forward, your contracts remain your most powerful tool for managing how and when you get paid.

If you are ready to take control of your invoicing, credit management, and debt recovery process, working with a professional commercial debt collection agency that understands the pressures SMEs face is a strong starting point.

Taurus Collections works with businesses across the UK to recover unpaid invoices, tighten up credit processes, and reduce the time between completing work and receiving payment. Get in touch today and let us take a look at where we can help.