TL;DR
The UK government has introduced a Late Payments Bill aimed at large firms that repeatedly pay suppliers late. The proposed legislation would cap payment terms at a maximum of 60 days, introduce mandatory interest on overdue invoices, and give the Small Business Commissioner powers to investigate and fine persistent late payers. Business groups have welcomed the move while raising questions about enforcement and whether it goes far enough to change payment culture.
Last reviewed: 14 May 2026
Late payment has been one of the most persistent complaints among UK small and medium-sized businesses for years. Suppliers wait weeks or months for invoices to be settled, while still having to cover wages, stock and their own bills on time. The government has now moved to address this with a new Late Payments Bill, introduced as part of a wider package of measures aimed at supporting smaller firms.
The Bill targets large companies that repeatedly pay late, rather than introducing blanket rules for every business relationship. This article explains what the legislation proposes, who it applies to, how the new fining powers would work, and what small businesses should know while the Bill moves through Parliament.
What the Late Payments Bill proposes
The Late Payments Bill sets out three main changes. First, it would cap payment terms at a maximum of 60 days, limiting how long a contract can require a supplier to wait for payment. Second, it proposes mandatory interest charges on overdue payments, reported as set at 8 percentage points above the Bank of England base rate. Third, it would give the Small Business Commissioner statutory powers to investigate companies and to fine those that repeatedly pay suppliers late.
Together, the measures are designed to shift the cost and the risk of late payment back towards the larger firms that cause it, rather than leaving small suppliers to absorb the delay.
Who the Bill applies to
The legislation is aimed at large firms. The intention described by the government is to tackle persistent late payers among bigger companies, rather than to police every transaction between small businesses. The Small Business Commissioner, an existing office created to support small firms in payment disputes, would be the body given the new investigation and enforcement powers.
Small businesses on the receiving end of late payment would be the intended beneficiaries. The detail of which firms count as large, and how enforcement thresholds work, is the kind of provision that can change as a Bill is examined in Parliament, so the final scope may differ from the version introduced.
How the new fining powers would work
Under the proposals, the Small Business Commissioner would be able to investigate companies suspected of repeatedly paying late and to issue fines where persistent late payment is found. This is a significant change from the Commissioner's current role, which has been focused on handling complaints and encouraging better practice rather than imposing penalties.
Mandatory interest at 8 percentage points above the Bank of England base rate would apply to overdue payments. With the base rate at 3.75%, that would put statutory interest in the region of 11.75% on late invoices, although the exact mechanism and any exemptions would be set out in the legislation as it is finalised.
How business groups have responded
Business organisations broadly welcomed the announcement. The Federation of Small Businesses has long argued that late payment costs the UK economy billions of pounds each year and forces otherwise viable firms into cash flow difficulty. Groups described the reforms as a meaningful step for SMEs that struggle with delayed payments alongside rising borrowing costs.
The response was not unqualified. Questions were raised about enforcement: whether the Small Business Commissioner would have the resources to investigate effectively, and whether the measures go far enough to change the payment culture among larger firms. The announcement also came against a backdrop of wider economic uncertainty, including elevated oil prices and warnings that recent UK growth may not last.
What small businesses should know now
The Late Payments Bill is at an early stage. Introduction is the start of the parliamentary process, not the end, and the provisions can be amended before the Bill becomes law. Nothing changes for existing contracts immediately on the basis of an introduced Bill.
In the meantime, small businesses can review their own contract terms, keep clear records of invoice dates and payment due dates, and make use of existing routes such as the Small Business Commissioner's complaints process. The existing statutory framework on late payment, including the right to claim interest and reasonable debt recovery costs on overdue commercial invoices, already applies and is separate from the new Bill.
Disclaimer: This article is for general information only and does not constitute legal or financial advice. The Late Payments Bill is proposed legislation and its provisions may change as it passes through Parliament. Businesses with specific concerns about payment terms, contracts or debt recovery should seek advice from a suitably qualified professional.
Frequently asked questions
What does the Late Payments Bill do?
The Bill proposes to cap payment terms at a maximum of 60 days, introduce mandatory interest on overdue payments at 8 percentage points above the Bank of England base rate, and give the Small Business Commissioner powers to investigate and fine companies that repeatedly pay suppliers late.
Which businesses does the Bill target?
The legislation is aimed at large firms that are persistent late payers. The intention is to protect small suppliers rather than to regulate every transaction between small businesses.
Is the Late Payments Bill now law?
No. The Bill has been introduced, which is the start of the parliamentary process. Its provisions can be amended before it becomes law, and nothing changes for existing contracts on the basis of an introduced Bill alone.
How much interest would apply to late payments?
The Bill proposes mandatory interest at 8 percentage points above the Bank of England base rate. With the base rate at 3.75%, that would be in the region of 11.75%, although the exact mechanism and any exemptions would be confirmed in the final legislation.
Can small businesses already claim interest on late payments?
Yes. The existing statutory framework on late commercial payments already allows businesses to claim interest and reasonable recovery costs on overdue invoices. That framework is separate from the new Bill, which would build on it.
How we verified this
This article is based on reporting of the UK government's introduction of the Late Payments Bill as part of a wider business support package, including the proposed 60-day payment term cap, mandatory interest set at 8 percentage points above the Bank of England base rate, and new powers for the Small Business Commissioner. Context on the cost of late payment reflects published positions from the Federation of Small Businesses. The current base rate of 3.75% reflects the Bank of England Monetary Policy Committee decision of 30 April 2026.
