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Late payment has quietly become one of the defining pressures on the UK small business sector, and this year the Government has moved from talking about it to legislating against it. For anyone responsible for credit control, understanding what’s actually in the pipeline is no longer optional.

The scale of the problem

The numbers are stark. Research shared with City AM found that 49% of SME invoices are paid late, with businesses waiting an average of 27 days after issuing an invoice before receiving payment. Other tracking puts the picture slightly ahead of that: UK small businesses were waiting 29.3 days to be paid as of June 2026, of which 8.3 days counted as late, an improvement year-on-year, but still a heavy drag on cash flow.

The Small Business Commissioner’s own research is blunter still. Late payments are estimated to cost the UK economy almost £11 billion a year, and around 14,000 businesses close annually as a direct result, the equivalent of roughly 38 businesses every day. On top of that, 22% of affected businesses report spending staff time chasing late payments, averaging 86 hours per business per year, which totals an estimated 133 million hours of staff time across the economy annually.

Separate research from Bibby Financial Services adds a sharper edge: 42% of SMEs say late payment stopped them paying staff salaries on time in the last year, and 24% have paused hiring as a result. The same research put the average business’s unpaid invoices at £66,770, up 10% year-on-year.

The legislative response: the Commercial Payments Bill

This is the backdrop to the Government’s biggest intervention in this area in a generation. The Commercial Payments Bill, also referred to as the Small Business Protections Bill, was introduced to Parliament on 19 May 2026, and has been described by the Government as the toughest crackdown on late payments in over 25 years.

Its core measures, as set out by Government and confirmed across legal and industry commentary, are:

• A 60-day cap on payment terms. Maximum payment terms of 60 days will apply to large firms paying smaller suppliers, with strictly limited exemptions.
• Mandatory statutory interest. Statutory interest, set at 8% above the Bank of England base rate, becomes an implied term of in-scope contracts, and terms attempting to exclude or vary that right will be void.
• A crackdown on late or vague disputes. Suppliers gain the right to recover a fixed sum where a purchaser raises a payment dispute late, or without providing sufficient information.
• A ban on withholding construction retentions. The Bill specifically targets the practice of withholding retention payments under construction contracts.
• Real teeth for the Small Business Commissioner. The Commissioner gains powers to investigate businesses suspected of poor payment practice, adjudicate payment disputes outside the courts, and fine persistent late payers, with potential penalties reported to run into tens of millions of pounds for the worst offenders.
• Board-level accountability. Boards or audit committees of persistently late-paying large companies will be required to publish commentary explaining their poor payment performance and the action they’re taking to fix it.

The Bill builds on the existing Late Payment of Commercial Debts (Interest) Act 1998 rather than replacing it, and, if it receives Royal Assent, is expected to come into force in 2027.

What this means in practice

For SMEs owed money, the Bill represents a genuine shift in leverage: a statutory cap on payment terms, guaranteed interest, and a regulator with investigatory and fining powers rather than a purely advisory role. But legislation changes what a business is entitled to; it doesn’t automatically change what lands in the bank account. Enforcement still starts with a business knowing exactly what’s owed, by whom, and for how long, and being able to act on that promptly and consistently.

That’s also where the current data points to a persistent gap. The Small Business Commissioner’s research already shows that 15% of businesses have simply stopped doing further business with customers based on their payment behaviour, rather than pursuing what they’re owed, a sign that, for many SMEs, chasing late payment still feels like more effort than it’s worth. The new legislation raises the stakes for large payers, but it will be most useful to small businesses that already have the visibility and process to spot a late payment early and act on it before it becomes a write-off.

A note on where we sit in this

Collections Cloud provides credit control and debt recovery software for UK SMEs, the kind of visibility and process referenced above, built specifically for businesses without a dedicated credit control team. Take a look at how it works on our platform features page, or compare options on our pricing page. We’ll be watching the Commercial Payments Bill’s progress through Parliament and sharing updates as it moves toward implementation.