UK contractors lose margin not when they win a job or build it well. They lose it while waiting to get paid. Construction carries the worst average payment delays of any sector in the country, at 38.2 days beyond agreed terms. Stack that on top of standard contractual payment periods and you have a business running on credit while the client holds your cash.
The government has now confirmed it intends to end this. On 24 March 2026, ministers published their response to the Late Payment Consultation, announcing plans to introduce the UK construction retention ban 2026, a mandatory 60-day payment cap, and statutory interest of 8% above base rate on overdue invoices. For contractors, this is the most significant payment-law shift in over 25 years. This post explains what is changing, why it matters, and what gives contractors the best chance of benefiting.
Why UK Contractors Have Always Had a Cash-Flow Problem
The construction payment cycle has a structural flaw: costs move faster than cash. Materials are bought upfront. Labour is paid weekly. However, revenue only arrives once someone signs a payment certificate, and often weeks after that.
The numbers are stark. Late payments cost the UK economy an estimated £11 billion every year, and around 14,000 businesses close annually because of cash-flow problems linked to late payment. For the construction sector specifically, average delays run to 38.2 days beyond agreed terms, the worst of any UK industry. That is roughly five extra weeks of exposure on margins that were already thin.
Small contractors feel this most. Nearly half of micro and small firms report experiencing payment delays more frequently than larger businesses, because they hold less cash in reserve and operate on shorter payment terms. A single slow-paying client can threaten the whole business.
This is why tracking live budgets and payment milestones in real time matters as much as winning the job. IntoAEC’s project budgeting software gives contractors a single live view of costs and cash commitments across every active project.
What Is the UK Retention Ban and What Does It Change?
Retention has been one of the quietest cash-flow drains in the industry for decades. Typically 3% to 5% of contract value is withheld across interim payments. Half releases on practical completion; the rest is held until the end of the defects liability period, sometimes two or three years after the work was done.
That money is yours. You have earned it. But it sits outside your business while you pay subcontractors, cover materials, and fund the next project.
The government’s March 2026 consultation response confirms its intention to prohibit the deduction and withholding of retention payments under construction contracts. Subject to a further implementation consultation, this ban applies across the sector and marks the end of an arrangement that has disadvantaged contractors for generations.
Alongside the retention ban, the reforms introduce a mandatory 60-day payment cap for large firms paying smaller suppliers, statutory interest at 8% above the Bank of England base rate on overdue invoices, and strengthened enforcement powers for the Small Business Commissioner. IntoAEC’s invoice and payment module connects payment milestones directly to site progress, so applications go out on time with the evidence to support them.
What the 60-Day Cap and Statutory Interest Mean in Practice
The 60-day payment cap prevents large firms from writing 90-day or 120-day payment terms into contracts with smaller suppliers. This closes a common workaround where clients used extended terms to slow payment while remaining technically compliant.
Statutory interest of 8% above base rate already exists under the Late Payment of Commercial Debts Act 1998, but enforcement has historically been weak. The new reforms strengthen the regime significantly. Interest begins accruing the day after a payment is due. Moreover, a payer must raise a genuine dispute within 30 days to pause the interest clock, which puts real pressure on clients to engage rather than simply delay.
For contractors, this creates a direct implication: your invoices and completion evidence need to be unambiguous from day one. A dispute is now more costly for the client to sit on, but only if your application is clean and your records are solid. Consistent daily site logs are one of the most practical ways to make payment applications dispute-proof from the start.
Why Disconnected Workflows Make the Problem Worse
Most contractors already know their paperwork is fragmented. The estimate lives in one spreadsheet, the BOQ in another, procurement in a chain of emails, and payment chasing in a separate tracker. Variations get agreed on site and noted in WhatsApp.
This is where margin quietly disappears. A material request approved on site turns out to be outside the budget allowance, but no one flags it until the QS reconciles the following month. Finance receives an invoice that does not match the BOQ line items. A payment application goes out three weeks late because no one knows exactly what percentage of the work has been certified.
Tracking bills and expenses in real time against the live budget closes these gaps before they become disputes or delays.
Under the new payment regime, this fragmentation is more expensive than ever. Statutory interest starts accruing automatically, and a poorly evidenced payment application gives clients an easy reason to raise a dispute and freeze the clock. The contractors who will benefit most from these reforms are those who can evidence completion quickly and accurately.
How IntoAEC Helps Contractors Protect Their Cash Flow
IntoAEC was built for UK and international contractors who need to manage the full commercial cycle in one place, from first estimate through to final payment, without switching between tools.
Estimate to BOQ. Estimates build directly into a live BOQ, so the QS, site team, and procurement all work from the same numbers. There is no version confusion between the tender figure and the operational budget.
Procurement against budget. The procurement module links purchase orders to BOQ line items, so cost commitments appear in the live budget as they happen, not when an invoice arrives weeks later.
Site progress to invoicing. Progress recorded on site feeds directly into payment applications. Applications go out faster and carry the completion evidence the new payment regime demands.
Payment tracking with real visibility. The IntoAEC dashboard gives owners a real-time view of payment status across all active projects. Problems surface while there is still time to act, not after a cash-flow crisis has already started.
The result is a workflow where cash-flow risk is visible at every stage and payment applications are cleaner, faster, and harder to dispute.
The Practical Takeaway for UK Contractors
The 2026 reforms give contractors stronger legal tools than they have ever had. However, those tools only work when the paperwork behind a payment application is solid. Statutory interest accrues from day one, and disputes pause the clock only when they are legitimate. The contractors who will benefit most are those who can evidence completion clearly, invoice quickly, and track payment status in real time.
If you want to see how IntoAEC fits into your commercial workflow, book a demo with the team or start a 7-day free trial today.
Frequently Asked Questions
On 24 March 2026, the UK government confirmed its intention to ban the withholding of retention payments under construction contracts. The ban is subject to a further implementation consultation but forms part of the largest package of payment law reform in over 25 years. Once in force, contractors will no longer have 3% to 5% of their contract value withheld during or after a project.
Construction has the worst average payment delays of any UK industry, at 38.2 days beyond agreed terms. Layered on top of standard contractual payment periods, this means contractors can wait two months or more beyond the date they expected to receive payment.
The reforms set statutory interest at 8% above the Bank of England base rate, accruing from the day after a payment is due. A client must raise a genuine dispute within 30 days to pause the interest clock, creating a stronger financial incentive to pay or engage promptly rather than delay.
The mandatory 60-day cap applies to large firms paying smaller suppliers. It closes the loophole where clients used extended contractual payment terms of 90 or 120 days to slow cash without technically breaching the law. Smaller firms trading directly with each other are not subject to the same cap.
Software that links site progress to invoicing produces payment applications faster and with cleaner completion evidence. When daily logs, BOQ approvals, and procurement records sit in one system, there is less room for a client to raise a dispute based on missing documentation, and less delay between finishing work and submitting an application.