October 2025 brings significant changes to the UK's prompt payment landscape, with new government regulations designed to strengthen payment practices throughout public sector supply chains. Companies seeking government contracts worth over £5 million annually will face stricter requirements that could impact their eligibility to bid.
What's Changing in October 2025
The most significant change is the reduction in average payment time requirements. From October 1, 2025, suppliers bidding for central government contracts exceeding £5 million per year must demonstrate that their average invoice payment time is 45 days or fewer—down from the previous 55-day threshold.
This tightening comes alongside enhanced enforcement measures. Government departments will conduct regular spot checks on large contracts to verify that smaller companies in the supply chain receive payment within the mandatory 30-day requirement established by the Procurement Act 2023. These spot check results will be published online, creating transparency around payment performance.
The existing requirement to pay 95% of invoices within 60 days remains in place, meaning companies must meet both the 45-day average and the 95% threshold to maintain contract eligibility.
Who Must Comply with Payment Reporting Requirements
Beyond those bidding for government contracts, large UK companies and LLPs are already required to report on their payment practices under the Reporting on Payment Practices and Performance Regulations 2017.
A company or LLP is considered "large" and must report if it meets at least two of the following criteria on its last two balance sheet dates:
- Annual Turnover: More than £54 million (increased from £36 million for financial years starting on or after April 6, 2025)
- Balance Sheet Total: More than £27 million (increased from £18 million for financial years starting on or after April 6, 2025)
- Number of Employees: More than 250 employees
These companies must publish payment performance reports twice yearly, providing transparency into how they treat suppliers and creating accountability for payment practices across the broader economy.
Why These Changes Matter
Late payments cost the UK economy £11 billion annually and force 38 businesses to close every day, according to government research. Small and medium-sized enterprises are particularly vulnerable, often lacking the cash reserves to weather extended payment cycles.
"Late payments cost businesses tens of thousands of pounds and is one of the biggest reasons businesses collapse."
The government's approach recognizes that good payment practices require systematic changes, not just policy commitments. By linking contract eligibility to measurable payment performance, the regulations create financial incentives for companies to invest in efficient payment processes.
"We are on a mission to make life easier for small firms by getting money moving faster through leveraging enabling technology at an individual firm and economy wide level."
Compliance Requirements in Practice
Meeting the new standards requires more than updating payment policies—it demands operational changes that can track, measure, and report payment performance accurately. Companies need systems that can:
- Process invoices efficiently to minimize administrative delays
- Provide real-time visibility into payment status across supply chains
- Generate audit-ready compliance reports for government spot checks
- Maintain detailed records of payment timing and performance metrics
- Produce bi-annual payment performance reports for regulatory compliance
Technology Solutions for Compliance
The October requirements highlight the limitations of manual payment processes. Companies relying on email-based invoice submissions and spreadsheet tracking will struggle to meet the new standards consistently.
E-invoicing platforms offer a systematic approach to compliance. AI-powered invoice scanning can detect errors before submission, eliminating the delays caused by incorrect or incomplete invoices. Digital workflows route approvals automatically, removing bottlenecks that extend processing times.
Real-time tracking systems provide the visibility needed for government reporting while eliminating the constant supplier status inquiries that consume administrative resources. When combined with early payment discount programs, these systems can transform compliance costs into measurable returns.
PAIDD Automates all Requirements
PAIDD is specifically designed to meet the October 2025 compliance standards through four core functions:
E-invoicing Automation: AI-powered invoice scanning detects errors before submission, while digital workflows automatically route to the right approvers. This eliminates the manual processing delays that typically extend payment cycles by weeks.
Track & Trace: Real-time payment status visibility eliminates supplier status calls while automatically generating the compliance data needed for government spot checks and reporting.
Early Payment Discount Administration: The platform handles all aspects of early payment requests, enabling companies to capture 1.75% average discounts while supporting supplier cash flow needs.
Automated Compliance Reporting: Real-time tracking of payment metrics automatically generates audit-ready documentation showing compliance with both the 45-day average and 95% threshold requirements, plus the bi-annual reports required for large companies.
The platform integrates with existing ERP and accounting systems, meaning companies continue making payments through their normal banking processes while automating the compliance administration.
Preparing for Implementation
Companies should begin by auditing their current payment performance against the new standards. This baseline assessment will identify the gaps between current capabilities and October requirements.
The key is viewing prompt payment compliance as an operational efficiency opportunity rather than a regulatory burden. Companies that implement systematic solutions now will be better positioned not only for contract eligibility but for the broader supply chain advantages that come with reliable payment practices.
For CFOs at companies meeting the £54M+ turnover threshold, the October deadline represents a clear choice: invest in efficient compliance systems or risk exclusion from significant government contracting opportunities.
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