Late payment is still the growth tax: what the Commercial Payments Bill does next

By Jason Sibley

The problem

Ask any small business owner what keeps them up at night and somewhere near the top you'll find the same answer: money that's owed but not in yet. Not lost. Not written off. Just... late. A signed-off invoice sitting in someone else's system while your own wages, rent and supplier bills don't wait for anyone.

The government's own figures put the cost at £11 billion a year to the UK economy, and it says late payment closes thirty-eight firms every single day. Whatever you think of any single statistic, the pattern behind it is one most small business owners recognise without needing a number at all: say you run a two-person accountancy practice, or you supply fittings to a construction firm, or you're a plumber waiting on a housing association. The work is done. The invoice is right. And you're still chasing.

There's a Bill working its way through Parliament that's meant to change the incentives around this. It isn't law yet. Below: where it stands, what it would change, and what you can do before any of it arrives.

Where the Bill has got to

Be clear on this bit, because it matters for what you do next: the Commercial Payments Bill is not law. And even once it passes, the new rules won't bite straight away.

It's officially the Commercial Payments Bill [HL], and the government's own press release also refers to it as the "Small Business Protections Bill". It started in the House of Lords, introduced on 19 May 2026. It cleared Lords Report stage on 15 September 2026, and Third Reading is scheduled for 20 October 2026. After that, it's expected to move to the House of Commons, where it will need to go through its own stages before it can become an Act.

At Report stage, the core proposals held: private sector purchasers would have to pay within 60 days, public authorities within 30 days, and cash retentions in construction contracts would still be banned. Peers tabled amendments to change or carve exceptions out of those headline positions. None succeeded.

Two other details matter. First, the government added a power to shorten payment limits by regulation later, but says it won't use that power for at least five years after the main provisions come into force, and it must consult within that period. Second, it's considering a 28-day limit for resolving payment disputes, though that's still subject to consultation and secondary legislation, so don't plan around it yet.

The consultation behind all this ran from 31 July to 23 October 2025 and drew 867 responses, with the government's response published on 24 March 2026. So this has been a long time coming and there's still a way to go: Commons stages, then, according to the government's own next steps, a lead-in period that includes a transition period before the new powers come into force. None of it would apply retrospectively either. If you're owed money today, this Bill won't reach back and fix that invoice.

What it would change, in plain English

If and when it becomes law, the Bill would:

• Cap payment terms at 60 days, with only strictly limited exemptions.
• Require interest on late payments at 8% above the Bank of England base rate.
• Give suppliers a right to a fixed sum when a purchaser raises a dispute late, or without giving enough information to justify it.
• Stop construction contracts from deducting or withholding retention payments.
• Hand the Small Business Commissioner real teeth: powers to investigate larger businesses suspected of persistent poor payment, take enforcement action including directions and financial penalties, and adjudicate disputes between small and larger businesses outside court, with binding interim decisions.
• Make large companies report the interest they've paid and the interest they owe (this bit needs secondary legislation to work), and require boards or audit committees at persistently late-paying large companies to publish commentary on it.

One thing is already moving. According to BCIS's write-up of Report stage, the Small Business Commissioner's budget has gone up 30% this financial year, with six new staff being recruited to take the team to 20. That's happening now, before the Bill has finished in Parliament.

What you can already do under today's rules (context only)

This is context, not advice, so check anything specific with your accountant or adviser. But under the rules as they stand right now, if another business pays you late you can already claim interest and debt recovery costs. An agreed payment date must usually be within 30 days for public sector customers or 60 days for business-to-business transactions. You can agree something longer than 60 days between businesses, but it has to be fair to both sides. Terms dictated by the bigger party don't automatically pass that test.

And if no date was ever agreed at all, payment counts as late 30 days after the customer received your invoice or you delivered the goods or service, whichever happened later.

If your contracts are vague on payment terms, or you've never actually looked at what they say, that's worth fixing regardless of what happens to this Bill. It's also worth reading our piece on getting paid without the awkward chase, which covers the practical side of this without needing new legislation to work.

Where AI helps: invoice packs and chase logs, not "AI debt collectors"

There's a temptation to reach for something that sounds impressive here, an "AI debt collector" that chases for you while you get on with actual work. Resist it. What you want is much duller and far more useful.

AI is good at drafting reminder emails in a tone that isn't apologetic and isn't aggressive either, and at assembling an invoice pack: the original invoice, the purchase order, the delivery note or timesheet, the agreed terms, and a dated log of every chase you've sent. When a dispute drags on, or when the Small Business Commissioner's expanded powers do come into force, that pack is what makes your case for you.

A human should always be the one who sends the email and decides what happens next. And never let a bot threaten legal action on your behalf. That's a decision, not an automation, and getting it wrong can cost you more than the invoice was worth. Our guide to AI for bookkeeping and invoices goes into the practical setup for this.

The one decision to make this week

You don't need to wait for Royal Assent to do the one thing that actually matters now: go back through your standard contracts and terms and check what they say about payment dates, interest and disputes. If they're silent, vague, or written by whoever had the upper hand in a negotiation years ago, that's the gap. Fix that, and you're better placed whether the Bill passes in its current form, gets watered down in the Commons, or takes another year to arrive.

A soft word before you go

If chasing invoices is eating more of your week than it should, My AI Apprentice's SMB AI sessions can walk through the reminder emails and the invoice pack with you. And if slow payment is really a client problem in disguise, our AI sales & marketing desk is there too. No pressure either way.