Commercial Payments Bill: what UK small businesses should know about late-payment reform

Late payment is moving back up the agenda for UK small businesses. On 15 September 2026, the Commercial Payments Bill completed report stage in the House of Lords. Its next scheduled parliamentary step is third reading on 20 October. That makes the Bill timely, but it is important not to treat the proposals as if they were already in force.

The practical opportunity is to use the proposed reforms as a prompt to tighten invoicing and cash-flow controls now. Whether or not every clause survives unchanged, businesses with clean evidence of what was invoiced, when it was received, when payment became due and what happened next are in a stronger position to collect cash and resolve disputes.

What the Bill proposes

The Department for Business and Trade says the Bill is intended to strengthen the rules around business-to-business payment practices. Its headline measures include a maximum payment term of 60 days with strictly limited exemptions, mandatory interest on late payments at 8 percentage points above the Bank of England base rate, stronger remedies where purchasers raise disputes late or without enough information, and new powers for the Small Business Commissioner.

What the law says today

Current GOV.UK guidance says that if a business payment date is agreed, it must usually be within 60 days for business transactions. A longer period can be agreed if it is fair to both businesses. If no payment date is agreed, the payment generally becomes late 30 days after the customer receives the invoice or the goods or services are delivered, whichever is later.

For qualifying business-to-business debts, suppliers can already claim statutory interest at 8 percentage points above the relevant Bank of England reference rate. They may also be able to claim fixed recovery compensation: £40 for debts up to £999.99, £70 for debts from £1,000 to £9,999.99, and £100 for debts of £10,000 or more. A contract can affect whether statutory interest applies, so check the actual terms before adding charges.

Why this matters even if your customers usually pay on time

Official Department for Business and Trade statistics published in July show that large businesses paid 15% of invoices late in 2025. The average time to pay was 32 days. Those averages can look manageable, but a small business does not experience payment delay as an average: one large overdue invoice can be enough to squeeze payroll, VAT, rent or supplier payments.

The Bill therefore matters as much for bookkeeping discipline as for legal rights. Late-payment protection is much easier to use when the transaction trail is complete. Missing purchase-order references, unclear acceptance dates, inconsistent payment terms and disputes left in email threads can turn a straightforward receivable into a time-consuming argument.

Five practical changes to make now

1. Put the agreed payment term on every quote, contract and invoice, and make sure the wording matches across all three. If a customer requires a purchase-order number or portal submission, record that requirement before work starts.
2. Capture an evidence trail for invoice delivery. Keep the invoice date, the date it was sent, the recipient or portal used, and any acknowledgement. This helps establish when the payment clock started.
3. Separate overdue from disputed invoices. Record the amount disputed, the reason, who raised it, when it was raised and what evidence is needed. Do not allow a small queried line item to make the entire receivable invisible in your cash forecast.
4. Build a consistent collections sequence. For example, send a reminder before the due date, follow up immediately after it passes, escalate material debts to a named contact and document every promise-to-pay date.
5. Track late-payment exposure in the cash-flow forecast. Show both contractual due dates and a realistic expected-receipt date based on each customer’s behaviour, so a slow payer does not make the forecast look healthier than the bank balance will be.

Should you start charging statutory interest on every late invoice?

Not automatically. The current law gives qualifying suppliers rights, but exercising them is a commercial decision and depends on the contract and circumstances. For a strategic customer who is one day late because of an administrative problem, an immediate interest invoice may not be the best first move. For repeated or material delays, however, understanding the statutory position gives the finance team a stronger basis for escalation.

A useful policy is to define internal triggers in advance: when reminders begin, when an account is placed on hold, when a director is involved, and when contractual or statutory recovery rights are considered. That makes collections more consistent and less dependent on whoever happens to notice the overdue balance.

What to watch next

The Bill’s next scheduled House of Lords stage is third reading on 20 October 2026. After that, it still has further parliamentary steps before it can become law, and the government has said businesses will receive lead-in time and transition arrangements before the new powers come into force. The reforms are also intended not to apply retrospectively.

For small businesses, the sensible response is therefore preparation rather than panic. Keep payment terms clear, make invoice evidence easy to retrieve, review overdue balances routinely and keep the cash forecast connected to actual customer behaviour. Those controls are useful under today’s rules and would also leave the business better prepared if the Commercial Payments Bill is enacted.