Issue
Can the Law Fix the UK's Late Payment Problem?
Introduction
Late payment has been a problem in UK business for decades. Larger businesses have often used extended payment terms to hold onto money owed while continuing to benefit from delivered goods and services, shifting the cash-flow burden onto smaller suppliers that lack the bargaining power to resist. Late payments cost the UK economy £11 billion a year and contribute to the closure of around 14,000 businesses annually, which is equivalent to roughly 38 every day. Following a major public consultation in late 2025, the government introduced the landmark Commercial Payments Bill to Parliament on May 19, 2026. Proposing mandatory payment caps, compulsory interest, and aggressive new enforcement powers, the key issue is whether the legislation will finally succeed in changing UK payment culture.
Background and Facts
The current framework under the Late Payment of Commercial Debts (Interest) Act 1998 gives creditors the right to claim statutory interest on unpaid invoices. In practice, that protection has often been weakened by contract terms that reduce or remove its effect, leaving smaller suppliers with limited leverage. The government ran a public consultation inviting businesses, trade bodies, and individuals to submit views on how the law should change. Known as "Time to Pay Up," it ran from July to October 2025 and received over 850 responses before the formal response was published in March 2026. The Commercial Payments Bill is the government's legislative response to those findings
The Bill's core provisions include:
- A 60-day cap on payment terms where a large business is paying a smaller supplier, with limited exemptions for large-to-large contracts and import/export arrangements
- Mandatory statutory interest at 8% above the Bank of England base rate, with no ability to contract out
- A 30-day deadline for raising invoice disputes and a right to compensation where that deadline is missed
- Expanded Small Business Commissioner powers to investigate poor payment practices, adjudicate disputes outside court, and impose financial penalties on persistent late payers
- New reporting obligations requiring large businesses with poor payment records to publish explanations on GOV.UK.
Analysis
The most significant change is the removal of the ability to contract out of statutory interest. The 1998 Act created a protection that many suppliers did not use because standard terms routinely replaced the statutory rate with something negligible before an invoice was ever raised. The Bill removes that option entirely; any clause attempting to lower the statutory rate will be legally unenforceable. Furthermore, mandatory board-level reporting and the threat of severe SBC fines elevate late payment from a back-office administrative concern to a primary corporate governance issue. The Bill does more than just speed up invoices; it changes the commercial incentives that have allowed late payment to persist.
Conclusion
The Commercial Payments Bill has not yet passed, and its final form may still change. What is clear is that the government is moving away from voluntary commitments with no enforcement mechanism toward statutory obligations with real consequences. Protections for smaller businesses are being strengthened. For larger ones, the contractual workarounds that diluted those protections for decades are being systematically closed off. The Bill's success will depend on how robustly the Small Business Commissioner uses its new powers, but the legal architecture it proposes is a serious attempt to make payment obligations enforceable in practice rather than negotiable in effect.