Late payment is not simply an administrative nuisance. It is money that has been earned but cannot yet be used to pay staff, replenish stock, settle tax bills or invest in the next opportunity.

The scale of the problem is considerable. According to the Government’s July 2026 response to its late-payments consultation, UK businesses are owed an estimated £26 billion in late payments at any given time – an average of £17,000 for each affected business. Those businesses spend an average of 86 hours a year chasing the money they are already owed.

New legislation is intended to change that. The Commercial Payments Bill has completed its committee stage in the House of Lords and proposes tougher limits, stronger enforcement and greater accountability for poor payment practices.

That is welcome progress. However, the Bill has not yet become law, its details may still change and even stronger rules will not remove every timing gap overnight. Businesses therefore need to understand both the proposed protections and the practical steps they can take now.

What is the Commercial Payments Bill?

The Commercial Payments Bill is designed to strengthen the rules governing late payments between businesses. The proposals currently include:

• A maximum payment term of 60 days when large businesses pay smaller suppliers, with limited exemptions.
• Mandatory interest on late payments, set at the statutory rate of 8% above the Bank of England base rate.
• A deadline for disputing invoices, intended to prevent customers from raising a query late in the process simply to delay payment.
• Stronger powers for the Small Business Commissioner, including the ability to investigate poor practices, adjudicate disputes and take enforcement action.
• A ban on retention payments in construction contracts, subject to the final form of the legislation.
• Greater board-level accountability, requiring persistently late-paying large companies to explain their performance and the action they are taking to improve it.

The Bill completed its House of Lords committee stage on 21 July 2026. It must still pass through the remaining parliamentary stages before receiving Royal Assent, so businesses should treat these measures as proposed changes rather than current law.

What rights do businesses have today?

Small businesses do not have to wait for the new Bill before taking late payment seriously.

Under the existing rules, an agreed payment date must usually be within 30 days for public authorities or 60 days for business-to-business transactions. A longer period can be agreed between businesses, but it must be fair to both parties. Where no payment date has been agreed, a payment normally becomes late 30 days after the customer receives the invoice or the goods or services are supplied, whichever is later.

Businesses may also be able to claim statutory interest on overdue commercial invoices. The current statutory rate is 8% above the Bank of England base rate, although different rules can apply where the contract already specifies another interest rate. Fixed-sum compensation for recovery costs may also be available.

The Small Business Commissioner provides a free interest calculator to help businesses work out potential interest and compensation. Before adding charges or beginning recovery action, it is sensible to check the contract and obtain professional advice where necessary.

Seven ways to protect cash flow now

Legislation can improve payment culture, but good credit control remains the first line of defence.

1. Agree the payment process before starting work

Do not stop at ’30-day terms’. Confirm the precise due date, the customer’s purchase-order requirements, where the invoice must be sent, who approves it and how disputes will be raised. A small administrative omission can give a customer an easy reason to delay payment.

2. Invoice immediately and accurately

Issue the invoice as soon as the contractual milestone is reached. Include the correct legal entity, purchase-order number, description of the work, payment details and due date. Waiting several days to invoice only extends the time before the cash reaches your account.

3. Make reminders part of a process – not a last resort

Schedule a polite reminder before the due date, another on the day and a defined escalation after it passes. The process should identify who contacts the customer, when the account is placed on hold and when senior management becomes involved.

4. Check how larger customers actually pay

Large companies within scope of the reporting rules publish information about their payment practices and performance. Reviewing that information before accepting a major order can help you identify whether the customer’s real payment behaviour matches the terms being offered.

5. Forecast using realistic payment dates

A cash-flow forecast based only on contractual due dates may give a false sense of security. If a customer consistently pays 15 days late, model that behaviour until the evidence changes. A rolling 13-week forecast can make a potential shortfall visible while there is still time to respond.

6. Reduce the amount at risk

For larger or longer projects, consider whether a deposit, staged invoices or milestone payments would be appropriate. The aim is to avoid financing the customer’s entire project from your own cash reserves.

7. Know when to stop supplying

Repeatedly accepting new work while old invoices remain unpaid can turn one overdue payment into a much larger exposure. Set clear credit limits and escalation points, and be prepared to pause further work in line with your contract.

If there is still a cash-flow gap, match the finance to the problem

The British Business Bank’s 2026 market report found that around half of smaller businesses seek external finance, with increased use of flexible forms of finance to support cash flow. The important word is appropriate: not every funding product suits every shortfall.

Cash-flow need	An option to consider	What to check
A short-term supplier bill or operating cost	A flexible payment facility or business credit card	Total fees or interest, the repayment date and whether the expected customer payment comfortably covers it
A seasonal or card-based business with variable takings	Revenue-based finance or a merchant cash advance	The total fixed cost, the percentage taken from card sales and how repayments behave during slower periods
A planned investment expected to generate returns over time	A business loan	Total repayable, term, affordability, security and any personal guarantee
Equipment or vehicles with a useful life of several years	Asset or vehicle finance	Deposit, term, ownership arrangements, maintenance obligations and early-settlement conditions

A two-week delay should not automatically create a multi-year debt. Equally, a long-term growth project should not be funded with an expensive short-term facility simply because it is quick to access. The repayment profile needs to reflect when the investment or outstanding invoice is realistically expected to produce cash.

Finance can provide breathing room, but it should not disguise a structural problem such as unprofitable pricing, customers who repeatedly breach agreed terms or borrowing that the business cannot comfortably repay.

Stronger rules are coming – but cash-flow resilience still matters

The Commercial Payments Bill could be a meaningful step towards a fairer payment culture. A 60-day cap, mandatory interest and stronger enforcement would make it harder for large businesses to use smaller suppliers as a source of free working capital.

But legislation is only one part of the answer. Businesses that understand their payment rights, tighten their invoicing process, forecast using real customer behaviour and choose finance carefully will be better placed to protect their cash now—and invest when the right opportunity appears.

Need help finding a finance option that fits the timing of your cash flow, not just the headline amount? FinCova can help you explore funding through its trusted partners.

Contact us today 

This article is for general information only and does not constitute financial, legal or tax advice. Finance is subject to application, status, approval and terms. Consider the total cost and your ability to repay before entering into any finance agreement.