What the Small Business Protections Bill really means for getting paid on time

The Small Business Protections Bill, formally introduced as the Commercial Payments Bill, entered Parliament on 19 May 2026. The government has described it as the toughest crackdown on late payments in a generation. It proposes a 60-day cap on payment terms, mandatory statutory interest on late payments at 8% above the Bank of England base rate, stronger powers for the Small Business Commissioner, and a ban on withholding retention payments under construction contracts.

If you run an SME and you are owed money by a larger business, the Bill is directly relevant. It could strengthen your position, but it is not a substitute for active credit control. The Bill still needs to pass through Parliament, secondary legislation and implementation before it changes day-to-day payment behaviour.

Late payments are estimated to cost the UK economy £11 billion a year and are linked to 38 UK business closures every day. That is why the legislation matters. But it will not recover the invoices already sitting unpaid on your ledger. This article explains what the Bill does, where its limits sit, and what you should do now.

What the Bill actually contains

A 60-day cap on payment terms

The headline proposal is a maximum payment term of 60 days, with strictly limited exemptions. The reform is aimed at stopping larger firms from imposing long payment terms on smaller suppliers.

This matters because 60-day, 90-day and even longer terms have been used for years to shift cash flow pressure down the supply chain. However, the detail matters. Exemptions may apply, including certain large-to-large arrangements, situations where the purchaser is the smaller party, and some import or export arrangements. You should not assume every business-to-business contract will be treated in exactly the same way.

Mandatory interest on late payments

Under the Late Payment of Commercial Debts Act, many businesses already have the right to claim statutory interest. The problem is that smaller suppliers often avoid doing so because they fear damaging the customer relationship.

The Bill is designed to make statutory interest mandatory in commercial contracts, set at 8% above the Bank of England base rate. Understanding how to reclaim late payment interest is therefore essential for business owners and credit controllers.

Stronger powers for the Small Business Commissioner

The Bill gives the Small Business Commissioner stronger powers to investigate poor payment practices, adjudicate disputes outside court, issue directions and impose financial penalties on persistent late payers. For SMEs dealing with large customers, this creates a more meaningful route for escalation.

It also supports the move away from voluntary codes and towards enforceable payment rules. The Prompt Payment Code has helped some suppliers, but the criticism has always been that it lacks real enforcement teeth.

A ban on construction retentions

The Bill proposes to prohibit the deduction and withholding of retention payments under construction contracts, with further consultation expected on implementation. For subcontractors, this could be one of the most important changes in the legislation.

Retentions have long been used as a cash management tool by main contractors. If the ban is implemented effectively, it could remove a major source of pressure from construction supply chains.

Audit committee reporting requirements

The Bill also places more scrutiny on persistently late-paying large companies. Boards or audit committees may be required to publish clear explanations of poor payment performance and set out what they are doing to fix it.

Reputational pressure matters. Once payment behaviour becomes visible at board level, it becomes harder for large firms to treat slow payment as a hidden cash flow strategy.

What the Bill means in practice: A summary

Where the Bill has limits

Being realistic about what the Bill does not cover is just as important as understanding what it does.

The Bill is not yet fully in force. It must complete the parliamentary process, receive Royal Assent and be brought into effect. The government has also said there will be a transition period.

The measures are not retrospective. They will not automatically rewrite past contracts or recover historic debts already owed to you.

Sixty days is still a long time. Many SMEs would prefer 30-day terms, and the government has indicated any move below 60 days would require further consultation. Good contract clauses that reduce late payment remain important.

International customers are outside the reach of UK domestic payment legislation in many cases. If you trade overseas, you still need a specific strategy for overseas debt recovery.

The Bill does not replace your own collections process. If a debtor is already late, you still need to act.

What you should do right now

Review your existing customer contracts

Start by checking which of your customers are on terms longer than 60 days. Identify whether they are large customers, whether any exemptions might apply, and whether your current contract wording leaves you exposed.

Reading the guide to setting up your terms and conditions is a useful starting point. For new customers, running a credit checking service before extending credit remains essential.

Start claiming statutory interest properly

You do not need to wait for the Bill to pass to claim statutory interest where you are already entitled to it. A properly issued letter before action debt demand should set out the invoice balance, interest, compensation and the deadline for payment.

The wider direction of travel is clear. The government wants late payment to become more expensive for the payer, not the supplier.

Tighten up your credit control process

The Bill is useful, but it is not a replacement for good systems. Aged debtors reporting that drives action should be reviewed weekly, not occasionally. You need to know who owes you money, how long it has been overdue, and what action has been taken.

Understanding how to ask for payment professionally and when to escalate an invoice to debt collection services remains just as important after the Bill as before it.

Consider whether outsourcing makes sense

Professional, documented credit control carries more weight than informal chasing. A credit control outsourcing service ensures reminders, statements, calls, disputes and escalation are handled consistently.

If your internal team is stretched, outsourcing is not simply another cost. It protects cash flow. The five benefits of using a good collection agency explains why external support often recovers more than internal chasing alone.

Build a process for escalation

The Bill strengthens the formal complaints route for persistent late payment by larger firms, but you still need evidence. Keep payment histories, emails, purchase orders, signed contracts, delivery records and dispute notes.

Understanding debt collectors versus lawyers and who to choose for debt recovery helps you choose the right option at each stage.

Address the cash flow problems you have today

Waiting for legislation is not a cash flow strategy. If business cashflow problems are already affecting your ability to pay suppliers, wages or tax, practical options are available now.

Invoice factoring can release cash tied up in unpaid invoices while you strengthen your collections process. If a debtor has disappeared, a trace a debtor service can help locate them before the recovery window closes.

For construction businesses: The retention ban is the biggest change

For construction firms, the proposed ban on retentions could be the most significant part of the Bill. If implemented effectively, it would change how money flows through construction contracts and reduce pressure on subcontractors.

However, the detail will matter. Transition arrangements, enforcement and timing will determine how useful the ban is in practice. Until then, managing construction retentions and late payment remains essential.

What the Bill does not fix overnight

Payment culture will not change the day a Bill enters Parliament. Large businesses that have relied on slow payment for years may not change without pressure, documentation and enforcement.

The question of can you really beat late payment issues without losing clients still has a practical answer: yes, but only if your process is clear, consistent and professional.

The ultimate late payment problem checklist remains relevant. So does understanding set-off and counterclaims in business debt recovery when a debtor disputes what is owed.

If a customer enters insolvency before paying, the Bill will not remove that risk. Understanding recovering debt from insolvent customers is still vital. For cross-border customers, invoice debt recovery and statutory demand insolvency options need specialist handling.

FAQs

Does the Small Business Protections Bill apply to all businesses?

The Bill focuses on commercial payment practices, with the 60-day cap aimed at preventing large firms from imposing excessive terms on smaller suppliers. Some exemptions are expected, so the exact application will depend on the final legislation and guidance.

When will the Bill become law?

The Bill was introduced to Parliament in May 2026. It still needs to pass through the parliamentary process and receive Royal Assent. The government has said there will be an appropriate lead-in period and transition arrangements before the measures take effect.

Can I report a large customer for late payment now?

Yes. The Small Business Commissioner already accepts complaints about poor payment practices. The Bill is intended to strengthen those powers, including investigation, adjudication and financial penalties.

What counts as a large firm?

The exact definitions will depend on the final legislation and any secondary rules. Large company reporting rules in the UK commonly look at factors such as turnover, balance sheet total and employee numbers, so it is important to check the final guidance when it is published.

Does the Bill affect old unpaid invoices?

No. The government has said the measures will not be applied retrospectively. Existing unpaid invoices still need to be recovered using your current contract terms, statutory rights and normal recovery routes.

What if my customer ignores the new rules?

The Bill is designed to give the Small Business Commissioner stronger enforcement powers, including penalties for persistent poor payment practices. You should still keep strong records and use formal recovery steps where payment is overdue.

Act on what you can control today

The Small Business Protections Bill is good news for UK SMEs, but the businesses that benefit most will be the ones that already have strong credit control in place. Do not wait for legislation to do the work your debtor process should be doing now.

If you want to improve how you manage and recover unpaid invoices, Taurus Collections is a debt collection agency UK SMEs across many sectors already rely on. From credit checking and outsourced collections through to formal demand letters, tracing, field visits and insolvency-related recovery, we support you at every stage of the process.

Get in touch today and let us help you get paid faster, regardless of when the Bill becomes law.