UK late payment Bill: what changes for small firms

If you have ever sent an invoice, watched the due date pass and then had to write the polite follow-up email, this story is about more than paperwork. On Tuesday 19 May 2026, the Department for Business and Trade announced the Small Business Protections Bill, formally called the Commercial Payments Bill, saying it was due to be introduced in the House of Lords that day. (gov.uk) The first thing we should keep clear is that this is a Bill, not an Act. UK Parliament explains that a Bill has to pass both Houses in the same form and receive Royal Assent before it becomes law, so the headline promises are real proposals, but they are not rules businesses can enforce yet. (parliament.uk)

At the moment, GOV.UK guidance says businesses can usually agree payment terms up to 60 days, and longer terms are still allowed if they are considered fair to both sides. The law also already lets suppliers charge statutory interest and debt recovery costs on late invoices, with statutory interest set at 8% plus the Bank of England base rate. (gov.uk) What the new Bill tries to do is shut some of the gaps in that system. The government’s consultation response says it wants a firmer 60-day maximum, a 30-day deadline for raising invoice disputes, and mandatory statutory interest so late payment costs more and is harder to wave away in contract negotiations. (gov.uk)

In its 19 May press release, the government highlighted four headline changes. Large firms would face a clear 60-day cap when paying smaller suppliers, late-payment interest would become mandatory, the Small Business Commissioner would get stronger powers to investigate and adjudicate disputes, and ministers say persistent late payers could face fines worth tens of millions. The same package also includes action to stop retention money being withheld in construction contracts. (gov.uk) There is also a transparency angle that matters. The government’s impact assessment says large companies paying more than 25% of invoices late would have to publish extra commentary explaining their poor performance and what they plan to do about it, which is a way of putting payment culture in front of boards rather than leaving it buried in the accounts team. (assets.publishing.service.gov.uk)

The reason ministers are aiming this at large buyers is not hard to see. Research commissioned by the Department for Business and Trade found late payments cost the UK economy almost £11 billion a year, affect more than 1.5 million businesses, leave an estimated £26 billion overdue at any given time, and eat up an average 86 hours a year for each affected business just in chasing payment. The same research estimates 14,000 businesses close each year because they are paid late. (smallbusinesscommissioner.gov.uk) The government’s impact assessment adds another important piece. Large businesses are more likely to pay late than smaller ones, and analysis in that document suggests they are responsible for about 65% of late-paid invoices in the economy. That helps explain why the Bill is aimed less at one-off admin mistakes and more at the bargaining power big firms can hold over small suppliers. (assets.publishing.service.gov.uk)

For freelancers, sole traders and family firms, late payment is not a dry accounting issue. It is often the moment when you realise you have effectively given a bigger client an interest-free loan while you still need to cover wages, rent, software, fuel or your own household bills. The government’s consultation papers say late payment disrupts cashflow, stops firms paying their own bills and can push businesses towards closure. (gov.uk) That is why this matters for workers and for local economies as well. When cash is stuck in one part of a supply chain, the pressure tends to spread outward to subcontractors, staff hours, recruitment and spending on the high street. That final step is an inference, but it follows from the government’s own evidence on business survival, delayed investment and the time lost chasing debts. (gov.uk)

One part of the Bill that may sound technical but really is not is the plan to tackle retentions in construction. HMRC explains that a retention is money held back for a maintenance period after work is completed, usually in case defects need fixing later. The consultation outcome says this money can be delayed, partly withheld or lost entirely if a firm higher up the chain becomes insolvent. (gov.uk) The government says it wants to make it unlawful for payers to deduct and withhold these retention sums. Its impact assessment says poor retention practices are common, that more than half of surveyed contractors reported partial or full non-payment, and that banning retentions should reduce the risk of loss and improve the financial resilience of smaller construction firms. (gov.uk)

Enforcement may turn out to be the most important part. Consultation responses told the government that the Small Business Commissioner had been too limited, largely because it lacked strong enforcement powers and many firms were not aware of it. The new plan would let the Commissioner launch investigations from anonymous or third-party information, compel evidence, make legally binding adjudications and fine businesses for persistent late payment. (gov.uk) That matters because many smaller suppliers do not use the rights they already have. The government’s impact assessment says businesses often avoid formal action because it is costly, uncertain and can damage customer relationships; it also says firms do not regularly use statutory interest in its present form for the same reason. In other words, the problem is not just the absence of rules but the fear of using them. (assets.publishing.service.gov.uk)

The government is calling this the biggest crackdown on late payment in more than 25 years and says it would give the UK the strongest framework in the G7. Those are ministerial claims, and the fair test will come later: whether Parliament keeps the key measures intact and whether payment behaviour changes in practice. (gov.uk) There is one more useful bit of honesty in the government’s own impact assessment. It warns that tougher penalties could have side effects, including more disputes or firms pushing payment terms towards the legal maximum. So if you are following this Bill, the questions to watch are simple: does the 60-day cap stay firm, do the fines feel real, and do small suppliers actually get paid faster? That is the difference between a good announcement and a good law. (assets.publishing.service.gov.uk)