The UK government has introduced legislation that would impose the strictest late payment rules in the G7, placing new legal obligations on large companies and giving small businesses their strongest protections in more than a quarter of a century.
The Small Business Protections Bill entered Parliament on 19 May 2026, updating a framework last set out in the Late Payment of Commercial Debt Act 1998. For sole traders, freelancers, and small suppliers, it represents a meaningful shift in how commercial payment disputes are handled.
What the Bill actually does
The centrepiece of the legislation is a hard 60-day cap on payment terms for large firms paying smaller suppliers. Late payments will automatically attract mandatory interest at 8% above the Bank of England base rate, removing any incentive for large buyers to delay as an informal cash management strategy.
The Bill also bans the withholding of retention payments in construction contracts, a practice that has long disadvantaged subcontractors who complete work but wait months, sometimes years, to receive funds held back by larger contractors.
The Small Business Commissioner gains significant new enforcement powers: the ability to investigate poor payment practices, adjudicate disputes, and impose fines on persistent late payers that could reach tens of millions of pounds. Boards and audit committees of companies with consistently poor payment records will also be required to publicly explain their performance and remediation plans.
Why it matters
Late payments currently close an estimated 38 businesses per day in the UK, costing the economy £11 billion annually. For many small business owners, the problem determines whether payroll clears, whether suppliers can be paid on time, or whether the business can take on new work. Until enforcement catches up, some firms are turning to a virtual collections specialist to chase overdue invoices proactively rather than waiting for the Bill’s protections to take effect.
UK Prime Minister Keir Starmer framed the legislation in the following way: “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.”
Business Secretary Peter Kyle added that late payments “choke growth, cost jobs, and force too many good businesses to close.”
FSB Policy Chair Tina McKenzie welcomed the measures, noting that “giving audit committees a clear role in payment practices is a vital step in changing late payment culture.”
Industry: rules are necessary but not sufficient
Payment specialists have cautioned that legislation alone will not resolve the underlying problem. Pat Bermingham, CEO of Adflex, said the reforms “highlight a deeper cultural problem — the UK remains one of the few places where it is still considered acceptable to pay small businesses late.”
Bermingham pointed to structural issues that tighter rules will not automatically fix: “Long, complex supply chains and uneven bargaining power mean that cash flow risk is routinely pushed onto smaller suppliers. When payments are delayed at the top, the impact cascades and in many cases, late payment becomes an informal financing mechanism.”
On technology’s role, he argued that solutions such as virtual commercial cards combined with straight-through processing are already helping firms automate payments and ensure suppliers are paid faster and more predictably and that enabling broader adoption of such tools should be part of the government’s strategy.
What small businesses should watch for
The Bill’s practical effect will depend on implementation and enforcement. The Small Business Commissioner’s expanded remit gives small firms a more accessible route to dispute resolution than civil litigation, though the process for filing complaints and the timescales for adjudication have yet to be detailed in full. Construction subcontractors stand to benefit most directly from the retention ban, which addresses one of the sector’s most entrenched payment problems.
For businesses that supply large corporate clients, the 60-day cap sets a clear ceiling on what can be written into contract terms. In addition, mandatory interest removes the risk-free benefit of dragging payments past agreed-upon dates.
The Bill is proceeding through the House of Lords. Its passage and eventual commencement date will determine when the new rules take effect.
