The New Late Payments Bill: Why Are Reforms Coming to the UK?

Late payment and extended payment terms have long been a feature of commercial relationships in the UK. For some businesses, particularly SMEs, they can have a significant impact on cash flow and day-to-day operations.

The Government’s proposed Small Business Protections (Late Payments) Bill, announced in the King’s Speech in May 2026, indicates a clear policy focus on payment practices between larger businesses and smaller suppliers.

If enacted in its current form, the proposed reforms would introduce a more prescriptive framework for payment practices and greater regulatory oversight in this area.

This article covers the basic changes, with commentary and context on why. For a more detailed read, explore our guide to the Commercial Payments Bill.

What is changing?

The Bill is still progressing through Parliament, and the reforms are not expected to take effect until 2027, however the proposed reforms include:

• A 60‑day cap on payment terms for large businesses paying smaller suppliers;
• Mandatory statutory interest on late payments (set at 8% above the Bank of England base rate);
• A deadline for raising invoice disputes;
• Enhanced powers for the Small Business Commissioner, including the ability to investigate and fine persistent late payers;
• Greater transparency and reporting requirements for large businesses;
• A proposed ban on withholding retention payments in construction contracts.

Taken together, these measures would mark a notable change from the current approach to payment regulation and are likely to affect how many businesses structure payment terms, invoice processes and contract administration.

Why is reform needed?

The Government’s case for reform is based on the wider economic impact of late payment. It has been reported that late payments cost the UK economy around £11 billion each year and contribute to the closure of approximately 38 businesses per day.

In practice, smaller suppliers may have limited scope to negotiate payment terms. Additionally, longer payment cycles can affect working capital and supplier relationships.

At the same time, larger organisations often operate complex payment processes and may need to balance internal controls, dispute management and cash flow considerations across substantial supply chains.

Whilst legislation such as the Late Payment of Commercial Debts (Interest) Act 1998 has long provided a theoretical right to interest on late payment, this is a voluntary interest regime and is often excluded, or the interest reduced, by the negotiated terms of a contract.

From consultation to legislation

The Bill follows a detailed Government consultation launched in July 2025, which attracted more than 850 responses from businesses and stakeholders across the UK.

That consultation explored a package of reforms aimed at improving transparency, shortening payment terms and strengthening enforcement. Responses reflected a range of views from across industry, with particular support for measures designed to improve payment certainty for smaller businesses.

The Government has since committed to a substantial reform of the UK’s late payment framework, which would be one of the most significant changes in this area in over 25 years.

What should businesses do now to review commercial contracts?

Although the legislation is not yet in force, businesses may wish to consider what the proposed changes could mean in practice. Steps to consider include:

• Review of standard payment terms — particularly where these exceed 60 days
• Review of interest clauses that reduce or exclude the minimum statutory rate
• Assess internal processes to ensure invoices are processed and paid promptly

Larger businesses may also wish to review their current payment practices and reporting processes in light of the proposed role of the Small Business Commissioner and the potential for increased scrutiny.

For more information and to ensure you stay ahead on commercial agreements, including advice from commercial contract solicitors, speak to our commercial law team.