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Large companies who persistently pay small suppliers late, or have unreasonably long payment terms, are facing the toughest UK crackdown in more than 25 years, as the Government aims to tackle one of the biggest cashflow problems affecting small businesses.
The Commercial Payments Bill, also named publicly as the Small Business Protections Bill by the Government, was introduced to Parliament in May 2026 and aims to rebalance the power dynamic between large firms and smaller businesses that work with them. This includes sole traders and freelancers.
Late payments can lead to serious cashflow issues for small businesses, resulting in staff being paid late, or not at all, forcing small business owners to rely on credit, and especially spending hours chasing money which should have already been paid. Those hours mount up and could be used to move the business forwards. 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?
The new Bill aims to make late payments a thing of the past, as it will cost large companies more and be harder to justify. A key proposal is for a 60-day cap on payment terms for large companies paying 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 itwith 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 along side 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 tough estaction 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.