A profitable business can still run short of cash when customers pay late. The government estimates that late payment costs the UK economy around £11 billion a year, and that about 38 businesses shut down every day because they are not paid on time. Ministers have responded with the Commercial Payments Bill, which is now working its way through Parliament. This article sets out what the Bill proposes, how earlier attempts to deal with late payment unfolded, and why invoice finance can remain a sensible tool even if the rules tighten.

What the Commercial Payments Bill proposes

The ideas come from a consultation that ran from July to October 2025. On 24 March 2026 the Department for Business and Trade confirmed it would take forward all nine measures it had put out for comment, and the Bill was introduced in the House of Lords on 19 May 2026, after the King's Speech. The main elements are:

  • A 60-day ceiling. Large firms paying smaller suppliers would be barred from setting payment terms longer than 60 days.
  • Statutory interest in every contract. Interest would run at 8% above Bank Rate. The government's own example shows a £10,000 invoice paid 60 days late growing to £10,293.15, made up of £193.15 interest plus £100 compensation.
  • A tougher Small Business Commissioner. The Commissioner could investigate poor payment practice, adjudicate disputes and fine the worst offenders.
  • Boardroom accountability. Boards or audit committees of persistent late payers would need to explain publicly why it keeps happening and what they are doing about it.
  • No more construction retentions. The Bill would stop buyers holding back retention money, with the detail still subject to consultation.

Where the Bill stands today

The Commercial Payments Bill began life in the House of Lords. The Small Business Commissioner's office has reported that it completed its second reading and moved into detailed committee scrutiny, with the Commons expected to take it up afterwards. Royal Assent is hoped for around the end of 2026 or early 2027, and secondary legislation normally takes a further three to four months. In practical terms, nothing has changed for your invoices yet. A commentary from one law firm suggests the new rules would not apply to contracts signed before they come into force, so the final wording matters. Check the Parliament website for the latest stage.

A short history of late payment law

  • 1998: The Late Payment of Commercial Debts (Interest) Act received Royal Assent on 11 June 1998 and came into force that November. At first, only small businesses could claim interest, and only from larger buyers.
  • 2000 and 2002: From 1 November 2000, small firms could also claim from each other, and from 1 November 2002 every business and public body could claim interest from any other.
  • How the Act works: Interest is set at 8% above Bank Rate, with fixed sums of £40, £70 or £100 depending on the size of the debt. Parties can agree their own terms, provided the contract gives a substantial remedy.
  • 2017: From 6 April, large companies had to publish their payment practices twice a year. The reporting rules were amended in 2024 and 2025, with new provisions for certain construction contracts from 1 April 2025.

The earlier measures gave suppliers a right to claim interest and required large companies to publish payment data. The government describes the new package as its toughest action on late payment in over twenty-five years, because it adds hard limits and penalties.

What ministers and the Commissioner have said

When the plans were confirmed, Business Secretary Peter Kyle said too many firms fail simply because they are not paid, and called the reforms the strongest update to payment law in a generation. Small business minister Blair McDougall said late payment can force owners to choose between keeping the business going and paying their staff. The Small Business Commissioner, Emma Jones CBE, said the changes would strengthen her office's ability to act against the worst payers. She has also noted that her office recovered three times as many overdue invoices in 2025 as in 2024, and that tighter exemptions were added after feedback from sectors such as importing retailers and booksellers. These views are summarised from the government's announcement of 24 March 2026.

Why the cash-flow gap will not disappear

A 60-day limit is still a long wait. During that time a supplier has to pay wages, VAT, materials and rent. The protection also depends on enforcement, and a customer can still pay on day 60. The gap between earning and receiving cash may narrow, but it will not close.

How invoice finance can help

With invoice finance, a lender advances a large share of an invoice's value soon after you raise it, with the exact percentage set by the provider, and pays the balance, less fees, once your customer settles. There are several versions:

  • Factoring: the provider can also look after credit control and collections.
  • Invoice discounting: you keep control of collections, often without telling your customers.
  • Selective invoice finance: you choose individual invoices to fund, rather than your whole sales ledger.

Funding rises and falls with your sales, so there are no fixed monthly repayments as there would be on a term loan. It has costs: expect a discount charge, which is often priced over Bank Rate (see our guide to this week's rate decision), plus service fees, and check recourse terms, minimum periods and limits on how much can be tied to a single customer. Lenders assess the creditworthiness of your customers, so strong payers help your application. Approval is never guaranteed, and facilities are subject to status.

Practical steps for SME owners now

  • Audit your terms. List which customers are on terms of more than 60 days.
  • Track payment behaviour. Record who pays late and by how many days.
  • Update your contracts. Make sure payment terms and late-payment interest are written down clearly.
  • Build a buffer. Forecast cash weekly so a delayed payment does not become a crisis.
  • Compare funding options. Weigh invoice finance against an overdraft, a term loan or asset finance.

Frequently asked questions

Is the 60-day cap law yet? No. It is a proposal in a Bill that has not received Royal Assent.

Can I charge interest on late invoices now? Yes. The 1998 Act already allows statutory interest and fixed compensation, unless your contract provides a substantial alternative remedy.

Will I still need invoice finance if the Bill passes? Possibly. It shortens the maximum wait but does not remove it, and it does not help with fast growth, seasonal peaks or customers who pay at the limit.