The Government has introduced the Commercial Payments Bill to Parliament, proposing the toughest crackdown on late payments in more than 25 years. If passed into law, the Bill will introduce new measures aimed at tackling one of the biggest cashflow problems affecting small businesses by targeting large companies that persistently pay suppliers late or impose unreasonably long payment terms.
The Commercial Payments Bill, also referred to by the Government as the Small Business Protections Bill, was introduced to Parliament in May 2026. The Bill aims to rebalance the relationship between larger businesses and smaller suppliers by strengthening protections against late payment and unfair payment practices. The proposed measures are expected to benefit small businesses, sole traders and freelancers that supply goods or services to larger organisations.
Late payments can cause serious cashflow problems for small businesses. This can result in businesses struggling to pay staff and suppliers on time, relying on borrowing to meet day-to-day costs, and spending valuable time chasing overdue invoices instead of focusing on growing the business. Government research has found staff at small businesses across the UK can spend up to 133m hours collectively chasing payments across the economy each year.
Late payments are estimated to cost the UK economy around £11 billion a year, according to Government figures, and they contribute to 38 businesses closing every day. Businesses are estimated to be typically owed £26 billion in late payments at any time, with firms affected owed an average of £17,000.
What proposals are in the Bill?
If enacted, the Commercial Payments Bill will introduce a number of measures designed to discourage late payment and unfair payment practices. One of the key proposals is a maximum contractual payment term of 60 days for qualifying transactions where large businesses purchase goods or services from smaller suppliers..
Long contractual payment terms, where the payment is technically made ‘on time’ but may be, say, 65 days or more after the work was completed, can create similar cashflow issues. To combat these practices, the Government is proposing reforms allowing smaller businesses to charge mandatory interest on late payments at 8% above the Bank of England base rate. This would give a current rate of 11.75%, as the Bank of England base rate was 3.75% at the time of writing.
You can already claim statutory interest and debt recovery costs if another business pays late, but the new rules would enshrine the right in legislation, making it harder for larger companies to work around it with contract terms.
Are there teeth behind the proposed legislation?
The Small Business Commissioner is expected to receive stronger powers to help deal with late payments in the UK. These include the power to investigate poor payment practices, adjudicate disputes and fine persistent late payers. Potential penalties could run into millions for large companies who are the worst offenders, as it could equate to a percentage of their overall turnover.
Emma Jones, Small Business Commissioner, said: “I am on a mission to make life easier for small firms by getting money moving faster through the economy by tackling late payments. The measures the Government has announced will strengthen the role of my office in taking on the worst payers alongside ensuring small businesses have a stronger voice on payment terms and late payment interest.
“I work with many firms, including those on the Fair Payment Code, who see the value of prompt payment to their business, but for too many late payments and long payment times persist with little accountability.
“These reforms will reduce the hours spent chasing debt, allowing small businesses to focus on more productive and enjoyable growth.”
Will it really make a difference?
Time will tell whether the rules change the behaviour of late-paying larger companies, but it is clear that late payment is no longer being treated as ‘just a normal part of business’. It ultimately has an impact on the wider economy.
Large companies who don’t pay smaller suppliers fairly, and on time, would face legal repercussions if the Bill becomes law in its current form. Prime Minister Keir Starmer said: “Small businesses are the backbone of our economy – run by people who take risks, create jobs and keep communities going. This Government is firmly on their side.
“Too many small business owners are spending hours chasing money they are owed and when payments don’t come through, the cost is personal. It’s about whether you can pay your staff, keep the lights on, or invest in your future.
“We’re changing that with the toughest action on late payments in a generation, so small businesses get paid on time and get the backing they need to grow, create jobs and serve their communities.”
Contact us
If you would like to find out how to deal with late payments and what options you have when it comes to cashflow, then please get in touch with us and we will explain what you need to know.
Disclaimer
This article is intended as general guidance only and is based on the Commercial Payments Bill as introduced to Parliament in May 2026. As the Bill is still progressing through the legislative process, the final legislation and its implementation may differ from the proposals outlined above. The information in this article should not be relied upon as legal or professional advice. Specific advice should always be sought based on your individual circumstances before taking any action.