Late Payment Legislation: What Businesses Need to Know

The government has introduced the Commercial Payments Bill (commonly known as the Small Business Protections Bill), proposing the most significant shake-up of UK business-to-business (B2B) payment law in decades. The reforms aim to tackle late payment in line with evolving UK late payment legislation, improve cash flow across supply chains and strengthen enforcement.

While the Bill may change as it passes through Parliament, its direction of travel is clear. Businesses of all sizes should start preparing now.

This article explores the most significant aspects of the impending reforms that all businesses need to be aware of.

You can read more about existing late payment laws on the UK Government website.

Mandatory statutory interest under late payment legislation

The Bill seeks to introduce mandatory statutory interest at a higher rate, with no “contracting out” via softer remedies. The Bill would make statutory interest on late payment an automatically included term in qualifying B2B contracts at 8% above the Bank of England base rate.

Parties would no longer be able to rely on a “substantial contractual remedy” (for example, a lower interest rate or different compensation) to replace statutory interest. In practice, any clause that seeks to reduce late payment interest would not be legally valid.

These changes are part of wider UK late payment legislation reforms aimed at increasing the cost of paying late and removing flexibility that some larger purchasers rely on in their standard terms. At the same time, the changes are intended to strengthen the bargaining power of smaller businesses.

Guidance on payment practices is also available via the Small Business Commissioner.

Late payment legislation and maximum payment terms

The Bill also aims to impose maximum payment terms, with non-compliant provisions being not legally valid. Most B2B contracts within the Bill’s scope would be capped at a 60-day payment period.

Where the purchaser is a public authority and the contract is not covered by the Procurement Act 2023, a shorter 30-day cap would apply.

If a contract sets a longer period, that term would not be legally valid and a compliant payment period would apply instead. The Bill includes anti-avoidance rules on trigger dates for the clock to start, preventing payment periods being extended through drafting mechanics or delayed acceptance milestones.

The intent is to standardise, shorten and make payment timelines harder to manipulate.

Statutory deadline for disputing invoices

Another significant aspect of the reform is the plan to introduce a tighter timetable for disputing invoices and fixed sum compensation for late or inadequate disputes.

Buyers would need to raise invoice disputes by the “last dispute day”, defined as eight days before the due date, or by the due date where a very short payment period applies.

A dispute raised after that cut-off, or raised without sufficient information, would expose the buyer to a fixed sum compensation payment in addition to any statutory interest (the higher of £40 and 1% of the contract price; or where only part of the contract price is disputed, 1% of the disputed amount).

Contract terms trying to exclude or vary these statutory terms would not be legally valid, unless it is found to be in the interest of justice to disapply them.

This aspect of the reform is designed to discourage tactical or vague disputes used to delay payment.

Expanded powers for the Small Business Commissioner (SBC)

The SBC would gain a mandatory adjudication scheme for payment disputes. Small businesses could refer disputes for swift decisions that are binding on an interim basis, and larger businesses would be unable to opt out.

The SBC’s toolkit would also expand to include:

• Investigations into persistent poor payment practices
• Directions requiring remedial action
• Publication directions naming non-compliant businesses
• Financial penalties of up to 1% of annual UK turnover for serious or repeated breaches

The regime would include proportionality safeguards and a route of appeal, but the message is clear: poor payment practices will carry real legal, financial and reputational consequences.

Additional reporting for large companies and enforcement for failures

Large companies would be required to report on their statutory interest liabilities compared to the amounts actually paid, adding transparency to the true cost of late payment across portfolios.

The Bill also strengthens enforcement for reporting breaches, aligning payment performance disclosures more closely with outcomes rather than process alone.

Who benefits and how

The primary beneficiaries are small and medium-sized enterprises (SMEs), which are most exposed to cash flow shocks from late payment.

By capping payment terms and making statutory interest unavoidable, the Bill raises the cost of delay and removes scope for weaker contractual remedies.

The SBC’s enhanced role adds a credible enforcement backstop, combining financial penalties with reputational pressure through publication.

Across supply chains, earlier payment should reduce financing costs, support investment and improve resilience.

Larger purchasers benefit indirectly through healthier suppliers and fewer distress-driven failures, though they will need to invest in process discipline to avoid interest, compensation and penalties.

What should you do under late payment legislation?

Whilst the Bill is still progressing through Parliament, businesses can, and should, get ahead of the curve by taking the following steps:

Review standard terms and templates

• Identify and amend any clauses that set payment terms beyond 60 days (or 30 days for non-Procurement Act public authority purchases)
• Remove provisions that attempt to replace statutory interest with alternative remedies
• Review acceptance or milestone mechanics that may fall foul of anti-avoidance rules

Update payment processes

• Ensure workflows meet 60-day (or 30-day) payment caps
• Capture and evidence the correct trigger date for payment
• Build controls to prevent delays

Strengthen dispute management

• Create a structured process to assess and raise disputes in time
• Define minimum information requirements for valid disputes
• Maintain clear records and provide staff training

Prepare for reporting requirements

• Track statutory interest liabilities against amounts paid
• Align finance, legal and reporting teams
• Ensure governance around disclosure accuracy

Conclusions

The Commercial Payments Bill represents a major shift in UK late payment legislation, driving faster, more disciplined payment practices backed by stronger enforcement.

For large purchasers, the focus is on operational readiness, compliant terms and reputational management. For SMEs, the reforms promise earlier payment, better remedies and a simpler route to dispute resolution.

Practical implications for debt recovery

Following reform, claimants pursuing debt recovery will benefit from mandatory statutory late payment interest at 8% above the base rate, without the risk of lower contractual rates being applied.

However, claimants must ensure proper presentation of their claims, including the statutory basis, rate, period and daily accrual.

For defendants, the loss of flexibility to negotiate lower interest rates represents a significant change and increases potential liability exposure.

Get in touch

If you would like to understand how these late payment legislation changes could affect your business, our specialist team can help you review your contracts and prepare with confidence. Get in touch for tailored advice.

FAQs on late payment legislation

What is late payment legislation in the UK?

Late payment legislation refers to legal rules requiring businesses to pay invoices on time and allowing suppliers to charge statutory interest if payments are delayed.

What is statutory interest on late payments?

Statutory interest is typically set at 8% above the Bank of England base rate and applies to overdue business-to-business payments.