On 24 March 2026, the UK Government published its response to the Late Payment Consultation — described as the most significant legislation to tackle late payments in over 25 years. The Small Business Protections Bill followed in the King’s Speech and has now been introduced to Parliament, beginning its legislative passage. This is not a future proposal — it is active legislation working its way through Parliament now.
Businesses should understand what is coming and start preparing now.
What the Small Business Protections Bill Introduces
A 60-Day Cap on Payment Terms
A statutory maximum of 60 days will be imposed on business-to-business payment terms, with strictly limited exemptions. Businesses that currently operate on 90-day or 120-day terms with smaller suppliers will no longer be able to do so. For SMEs that have historically had to accept extended terms simply to secure work from larger clients, this is a material change.
The exemptions are narrow. Where both parties are large companies, or where international trade is involved, different rules may apply. For the majority of B2B transactions between a larger buyer and a smaller supplier, 60 days is the ceiling.
Mandatory Statutory Interest on Late Payments
Statutory interest on late payments — currently set at 8% above the Bank of England base rate — will become mandatory on all commercial contracts. Businesses will no longer be able to contract out of it. At present, most contracts substitute a significantly lower rate, or suppliers simply do not claim it for fear of damaging the relationship.
That changes under the new framework. The right to interest will exist automatically, without the supplier needing to request it or negotiate for it.
A 30-Day Deadline for Disputing Invoices
Debtors will have 30 days from receipt of an invoice to raise a dispute. Businesses that do not raise disputes within that window will owe compensation to the supplier. This closes a common tactic — raising spurious disputes weeks after the fact to delay payment obligations.
For suppliers, this creates a new obligation in reverse: document everything. If a dispute is raised, you need a clear record of when the invoice was delivered, what was agreed, and what communications have taken place since.
New Powers for the Small Business Commissioner
The Small Business Commissioner will be given new powers to investigate poor payment practices, adjudicate disputes, and fine persistent offenders. Fines for the worst offenders could reach tens of millions of pounds.
Large companies will be required to report on statutory interest owed and paid in
their annual reports. Boards and audit committees will be required to publish commentary on late payment performance where a significant proportion of payments have been made late
What This Means in Practice
The legislation does not make late payment disappear. What it does is shift the legal and commercial context materially in favour of smaller suppliers. Mandatory interest means that every late invoice is now accruing a quantifiable, enforceable cost to the debtor — whether or not suppliers chooses to claim it.
The businesses best positioned to benefit are those that already have a consistent, documented chasing process in place — with clear payment terms, a structured escalation approach, and a clear record of every communication sent. They will know what is owed, when it fell due, and what exactly has been chased. Enforcing a statutory interest claim is straightforward when the process has been running properly from day one.
The businesses that will struggle to benefit are those whose chasing is ad hoc, poorly documented, or handled by people who do not want the conversation. A legal right is only as useful as your ability to evidence and enforce it.
How to Prepare
The Bill is before Parliament and not yet in force. Preparation now avoids disruption when it takes effect.
- Review your standard payment terms. If you currently offer terms beyond 60 days, update your contracts and client agreements before the cap takes effect.
- Ensure every invoice clearly states payment terms, the due date, and the consequences of late payment. Ambiguity about terms weakens your position under the new framework
- Document your chasing process. The 30-day dispute window works in your favour only if you have evidence of when invoices were sent and received.
- Get your chasing process running consistently. Statutory interest accrues from the due date. Businesses that are chasing consistently from day one will be better placed to identify and claim that entitlement.
For businesses that want to understand what a consistent, professional chasing process looks like in practice, that is covered here:
How to Chase Invoices: What a Professional Process Looks Like
A professional invoice chasing process has a defined structure. It is not a series of ad hoc emails sent whenever someone gets round to it.
For businesses considering how automation can make that consistency easier to maintain, the options are covered here:
How Accounts Receivable Automation Changes Invoice Chasing for UK SMEs
A professional invoice chasing process has a defined structure. It is not a series of
ad hoc emails sent whenever someone gets round to it.
The Broader Context
This legislation sits alongside the UK Government’s Fair Payment Code, which encourages large businesses to commit to faster payment through a tiered gold, silver and bronze award system. The Code and the incoming legislation are part of the same sustained government push to rebalance the payment relationship between large buyers and smaller suppliers.
For SMEs, the combined effect is a significantly stronger legal and commercial position than existed before. The question is whether your internal process is strong enough to take advantage of it.
The scale of the late payment problem — and what it costs SMEs in cash flow and working capital — is covered here:
Why Consistency Matters
Chasing unpaid invoices is one of the most persistent problems facing UK SMEs — and one of the most avoidable.
