Late payment crackdown: what is law now and what owners can do today

Most owners of growing firms have a customer like this. The work was delivered on time, the invoice went out the same day, and six weeks later you are still being told it is “in the next payment run”. Meanwhile wages, VAT and suppliers all have to be paid on the dot. Late payment is one of the quietest ways a perfectly good business gets squeezed — and the government has finally decided to do something serious about it.

The headlines can make it sound as though the new rules are already here. They are not. This article sets out exactly what is law today, what is still going through Parliament, and — most usefully — what you can already do to get paid faster without falling out with the customers you want to keep.

What is proposed: the Commercial Payments Bill

The government’s July 2025 Small Business Plan promised the toughest late payment regime in a generation. Following a consultation, the government published its response in March 2026, and the Commercial Payments Bill — which ministers have also called the Small Business Protections Bill — was introduced in the House of Lords on 19 May 2026.

As drafted, the Bill would:

• Cap payment terms at 60 days for business-to-business contracts and 30 days where the customer is a public authority, with strictly limited exemptions. Longer terms written into a contract would simply be void.
• Make statutory interest mandatory. Today many larger businesses write the right to interest out of their contracts. The Bill would stop contractual terms that exclude or water down statutory interest at 8% above the Bank of England base rate.
• Penalise late disputes. Suppliers would be entitled to a fixed sum where a customer raises a dispute late or without proper detail — closing off the old trick of “querying” an invoice on day 59.
• Ban retentions in construction contracts, on a phased basis.
• Give the Small Business Commissioner real teeth — powers to investigate larger businesses that persistently pay late, to adjudicate payment disputes between small suppliers and larger customers outside the courts, and to issue directions and financial penalties.

Where the Bill actually stands

The Bill has passed its second reading, committee stage and report stage in the House of Lords, the last on 15 September 2026. Third reading in the Lords is scheduled for 20 October 2026. It must then go through all of its stages in the House of Commons before it can receive Royal Assent, and the government has said there will be a lead-in time and a transition period before the new powers come into force. No commencement date has been announced.

So the honest position, as of October 2026, is this: none of the Bill’s measures is law yet. The 60-day cap, mandatory interest and the Commissioner’s new powers are all still proposals, and details could change in the Commons. Plan for them, but do not rely on them to collect this month’s invoices.

What is law today

The good news is that you already have more rights than most owners use. The Late Payment of Commercial Debts (Interest) Act 1998, as amended in 2013, applies to business-to-business transactions and gives you:

• Statutory interest at 8% above the Bank of England reference rate. The reference rate is fixed twice a year — the base rate on 30 June applies from July to December, and the rate on 31 December applies from January to June. With base rate at 3.75% on 30 June 2026, the statutory rate for the second half of 2026 is 11.75% a year.
• Fixed compensation on each late invoice: £40 for a debt under £1,000, £70 for £1,000 to £9,999.99, and £100 for £10,000 or more. Where your reasonable recovery expenses are higher, you may claim the difference too.
• A default payment date. If no date has been agreed, payment is late 30 days after the customer receives your invoice or you deliver the goods or service, whichever is later.
• A soft 60-day limit. Terms longer than 60 days between businesses are only allowed if both sides expressly agree and they are not “grossly unfair” to the supplier — the loophole the new Bill would close.

The weakness today is that a customer’s contract can replace statutory interest with a “substantial” alternative remedy, and many larger firms write such terms into their purchase conditions. If you sign their paperwork without reading it, you may have given away more than you realise.

A worked example

Take a Sussex engineering firm with 18 staff — we will call the owner Sarah, purely as an illustration. She invoices a regional contractor £8,400 including VAT on 30-day terms. The money finally arrives 45 days after the due date.

Under the 1998 Act, Sarah is entitled to:

• Statutory interest: £8,400 × 11.75% ÷ 365 × 45 days = roughly £122
• Fixed compensation for a debt between £1,000 and £10,000: £70

That is about £192 on one invoice. On its own, not life-changing. But if a third of Sarah’s invoices run late in the same way, the figure across a year becomes worth having — and, more importantly, a customer who knows Sarah charges interest tends to move her invoices up the pile. The real prize is not the interest. It is being paid on time.

The traps

Assuming the new rules already apply

Several commentators write as if the 60-day cap is in force. It is not. Until the Bill is passed and commenced, a customer can still agree longer terms with you if they are not grossly unfair.

Signing away your rights

Large customers’ standard terms often set long payment periods or exclude interest. Read the payment clause before you sign, and push back while you still have leverage — before the work starts.

Vague invoices

An invoice without a purchase order number, a named contact or a clear due date is an invitation to delay. Every gap gives the customer’s accounts team a reason to send it back.

Waiting too long to chase

The older a debt gets, the harder it is to collect. Silence for 30 days after the due date tells a customer you are a supplier who can wait.

Charging interest in anger

A surprise interest demand to a good customer who was a week late can sour a valuable relationship. Used consistently and announced in advance, the same right becomes simply part of how you do business.

What to do now

• Put clear terms on every invoice — the due date as an actual date, your bank details, the purchase order number, and a line stating that you reserve the right to charge statutory interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998.
• Agree terms before the work, not after. Put payment terms in your quote and your engagement letter, and get them acknowledged.
• Credit check new customers before extending meaningful credit, and set a credit limit you are comfortable losing.
• Take deposits and stage payments on larger or longer jobs. Money up front is the simplest protection there is.
• Run a chasing routine. A friendly reminder a few days before the due date, a call on the day after, a firm letter at 14 days, and a final letter mentioning interest at 30 days. Make it a process, not a mood.
• Know who pays the invoices. A good relationship with the customer’s accounts payable team is often worth more than one with their managing director.
• Use interest as a lever, not a weapon. Many owners waive interest for a customer who pays promptly once reminded, and apply it firmly to persistent late payers. The Small Business Commissioner’s online calculator will work out the figure for you.
• Watch your concentration. If one customer accounts for a large share of your income, their payment habits are effectively your cash flow.
• Know where to turn. If you are a small business with a dispute against a larger customer, the Office of the Small Business Commissioner can already offer support and advice today.

Why this matters beyond the bank balance

A business that collects its money reliably is a stronger business to own, to sell and to hand on. Whoever picks up the reins one day — a family member, a management team or a buyer — will look closely at how quickly customers pay. Tidy credit control is part of building something with lasting value, and that is exactly what good estate planning for business owners is designed to protect.

In short

The Commercial Payments Bill should, in time, give small suppliers far stronger protection. But it is not law yet, and no start date has been set. Your rights under the 1998 Act are available now: statutory interest at 8% above base rate, fixed compensation of £40, £70 or £100 per invoice, and a clear default payment date. Combine them with clear terms, deposits and a steady chasing routine, and most late payers become prompt ones.

If you would like to talk through how your business fits into your wider estate plan — your Will, Business Relief and what happens to the company when you step back — book a Discovery Call. It takes 30 minutes, the fee is £30, and that £30 is credited against your fees if you go on to instruct us.