UK late payment reforms 2026: what the new rules could mean for SMEs

Late payment can quickly knock an SME’s plans off course, delaying hiring, investment and day-to-day decisions. The Government’s Commercial Payments Bill is intended to tackle that pressure, with tougher payment terms, mandatory interest and stronger enforcement now moving through Parliament.

Late payment costs the UK economy an estimated £11 billion each year and is linked to the closure of 38 businesses every day. For individual SMEs, the pressure can be immediate, particularly where one large or important customer repeatedly pays late.

The proposals aren’t yet law and may change as the Bill moves through Parliament. But businesses now have a clearer picture of what may be coming and what they can start reviewing. Ian Carson, partner and head of dispute resolution at Harper James, says:

Businesses should look at payment terms and internal processes together. Updating a contract won’t solve the problem if valid invoices remain stuck in approval queues or disputes are raised without clear reasons.

For SMEs, stronger rights and enforcement could make it easier to challenge poor payment practices. For larger businesses, the Bill is a reason to look closely at how payments work across the organisation rather than waiting for the rules to come into force.

What would the Commercial Payments Bill change?

A 60-day maximum payment term

The Bill would introduce a maximum payment period of 60 days for most private-sector commercial contracts, subject to limited exemptions.

Where a contract doesn’t contain valid payment terms, a 30-day payment period would apply. Any term that tries to extend payment beyond the permitted maximum would be void.

Public authorities would generally remain subject to a 30-day maximum. Some exemptions will be set through further regulations, so the final scope isn’t yet confirmed.

Mandatory statutory interest

Businesses can already claim statutory interest and certain recovery costs under the Late Payment of Commercial Debts (Interest) Act 1998.

The Bill would go further by preventing commercial contracts from excluding or changing the statutory right to interest. The proposed rate remains 8% above the Bank of England base rate.

This could strengthen a supplier’s negotiating position. But many SMEs are understandably reluctant to charge interest where they rely on an important customer, so commercial relationships will still shape when these rights are used.

You can read more in our guide to claiming interest on late payments.

Earlier action on invoice disputes

The Bill would allow suppliers to recover a fixed sum where a customer raises an invoice dispute late or doesn’t provide enough information about the problem.

This is intended to stop customers waiting until the payment deadline, or later, before questioning an invoice. The exact deadline and compensation arrangements will be set through the final legislation and supporting regulations.

Good records will become even more important. Businesses should be able to show when an invoice was received, whether it met the contract requirements, when any concern was identified and how it was communicated.

Stronger powers for the Small Business Commissioner

The Small Business Commissioner currently helps small businesses resolve payment problems and promotes fairer payment practices. The Bill would significantly expand that role.

The Commissioner could be given powers to:

• investigate persistent poor payment practices
• issue directions, penalties and other enforcement action
• adjudicate certain disputes between small and larger businesses
• enforce payment practices reporting requirements.

Persistent late payers could face penalties of up to 1% of their annual UK turnover. The final enforcement rules and methods for calculating penalties will be set through further regulations.

Greater reporting and board-level scrutiny

Large companies and limited liability partnerships already have to report on their payment practices twice a year.

The Government plans to expand those requirements, including reporting the statutory interest businesses have paid and still owe. Boards or audit committees of persistently late-paying companies may also have to explain publicly what has gone wrong and how they plan to improve.

That makes payment performance more than a finance issue. It could become a wider governance and reputational concern involving procurement, legal, operational and leadership teams.

The voluntary Fair Payment Code, which replaced the Prompt Payment Code, will continue to provide a benchmark for good payment behaviour.

What could the reforms mean for SMEs?

The reforms could give SMEs more room to push back when larger customers impose lengthy terms or repeatedly pay late. A statutory cap, stronger enforcement and a possible adjudication route may also make it easier to challenge poor payment practices.

But the new rules won’t replace good contracts or effective credit control. SMEs will still need to:

• agree clear payment and invoicing terms
• issue accurate invoices promptly
• keep evidence that work and contractual milestones have been completed
• raise delays and disputes before unpaid amounts build up.

Our guides explain the options available when you’re dealing with an unpaid invoice or a disputed invoice.

What could the reforms mean for larger businesses?

For larger organisations, the biggest impact may be operational. Long payment cycles are often built into contract templates, procurement policies, approval systems and supplier finance arrangements.

Businesses should consider:

• which contracts currently allow payment beyond 60 days
• how quickly invoices are checked and approved
• whether disputes are raised promptly and clearly
• whether payment reporting data is reliable
• who has responsibility for payment performance.

Poor payment performance can also damage supplier relationships. Suppliers may become less willing to accept work, increase their prices to reflect the risk or ask for deposits and other protection.

What should businesses do now?

There’s no need to rewrite every contract immediately, but businesses can use the Bill as a reason to review their position.

A practical starting point is to:

1. Review standard payment terms. Identify templates that allow payment beyond 60 days or contain lengthy approval procedures.
2. Check important supplier and customer contracts. Focus on agreements involving significant spend, recurring delays or tight margins.
3. Test invoicing and approval processes. Make sure valid invoices reach the right people and can be approved within the agreed period.
4. Document disputes properly. Give clear reasons, supporting evidence and the amount in dispute rather than placing the entire invoice on hold.
5. Review interest, recovery and reporting processes. Make sure teams understand when statutory rights apply and that published payment data is accurate.

Our commercial contract solicitors can help review payment clauses and update contract templates as the Bill progresses.

What happens next?

The Commercial Payments Bill must pass through the House of Lords and House of Commons before it can receive Royal Assent. Its committee stage in the Lords is scheduled to begin on 21 July 2026, although parliamentary dates can change.

Further regulations will be needed to confirm exemptions, enforcement and adjudication processes, reporting requirements and the timetable for implementation. The Government has said businesses will receive a lead-in period, but no firm implementation date has been confirmed.

Until the new rules come into force, existing late payment laws continue to apply. Private-sector businesses can agree payment periods longer than 60 days, provided the terms aren’t grossly unfair to the supplier. Suppliers can also generally claim statutory interest at 8% above the Bank of England base rate and certain debt recovery costs, although contracts may sometimes provide a different interest arrangement.