New law to tackle late payments: what small businesses need to know

Nichola Evans, Partner

Late payments are not a new problem, but they are a growing one. With millions of unpaid invoices clogging up the books and heavily contributing to the closure of small businesses across the country, the government has finally decided to act.

Late payment crisis: how bad is it?

The scale of the problem is difficult to ignore. Data from insolvency trade body R3 shows overdue invoices reached 17.48 million in the first quarter of 2026, with research from Bibby Financial Services putting the average amount owed to small businesses at £66,770 – up 10% year on year. The problem is estimated to cost the UK economy £11 billion every year, contributing to the closure of around 14,000 businesses annually.

In response, the Government introduced the Small Business Protections (Late Payments) Bill in the House of Lords on 19 May. Building on the Late Payment of Commercial Debts Act 1998, the reform significantly strengthens existing protections and removes the ability of larger businesses to negotiate away rights that currently exist on paper but are routinely bypassed in practice.

The headline measures are a 60 day cap on payment terms where a larger business is contracting with a smaller supplier, mandatory interest on late payments at 8% above the Bank of England base rate regardless of what a contract says, and a statutory deadline of around 30 days to dispute an invoice, after which interest will begin to accrue even if a dispute is raised late. The Small Business Commissioner will gain real enforcement powers, enabling it to investigate, adjudicate disputes and impose fines.

What the Late Payments Bill means for small businesses

If you run a small business and late payments are a regular problem, these reforms are there to help you. The 60-day cap, mandatory interest, and the new invoice dispute deadline all shift the balance away from larger business who have historically used small suppliers as an interest-free source of credit. The expanded powers of the Small Business Commission mean there will, for the first time, be a regulator with real authority to act on your behalf.

If a customer is consistently paying late, ignoring invoices or has become insolvent, leaving you out of pocket, taking early legal advice can make a significant difference to what you can recover.

Getting the contract right at the start is the most effective way to avoid problems further down the line. If you do find yourself in the position where invoices are being ignored or disputed, our commercial litigation team can advise on your position and help you pursue what you are owed.

Contributors: Sean Sloane