The Small Business Protections Bill entered the House of Lords on Tuesday, beginning its passage through Parliament as the Government’s most significant legislative intervention on late payments in over 25 years.
Formally known as the Commercial Payments Bill, the legislation builds on the Late Payment of Commercial Debts Act of 1998. Its core measures are a mandatory 60-day cap on payment terms between large firms and their smaller suppliers, automatic interest on overdue invoices at 8% above the Bank of England base rate, and substantial new enforcement powers for the Small Business Commissioner.
What the Small Business Protections Bill Does
Under existing rules, 60 days was the expected maximum under the voluntary Prompt Payment Code. Meeting that deadline was widely encouraged but never legally required. The new legislation makes it a binding obligation.
Where invoices are paid late, interest will accrue automatically at 8% above the Bank of England base rate. Under the 1998 Act, small businesses could already claim that interest in theory. But in practice, many didn’t. As the Government’s consultation on late payments acknowledged, smaller suppliers were routinely unwilling to charge large clients interest for fear of damaging relationships.
As a result of the new legislation, however, the Small Business Commissioner will gain significant new powers: the ability to investigate suspected payment abuses, adjudicate disputes outside the court system, and impose fines on persistent offenders – penalties that the Government has said could be worth tens of millions of pounds. As part of this, boards and audit committees of large companies with poor payment records will also be required to publish clear accounts of their performance and the steps they are taking to improve it.
A fourth measure, less widely reported, bans the withholding of retention payments in construction contracts. Retentions are a practice by which a proportion of a subcontractor’s payment is held back after project completion – sometimes for years – leaving smaller firms carrying the financing cost of money already earned.
Who It Applies To
The bill is targeted at large firms making payments to smaller suppliers in commercial transactions within the UK, but there are limited exemptions, namely: where payment terms are agreed between two large companies, where the purchasing party is the smaller of the two, and where goods or services are being exported or imported.
When It Takes Effect
The bill entered the House of Lords on 19 May, 2026, but it still requires full parliamentary scrutiny – committee stage, report stage and a third reading in each house – before it can receive Royal Assent and take legal force. As of writing, no commencement date has been set.
The stated intent of the bill is, as Business Secretary Peter Kyle described in response to the announcement, to “back small businesses with the certainty they need to grow and thrive”. He stresses that late payments are costing the UK economy £11 billion every single year, with government research linking the problem to 38 business closures every single day. While the bill has broad support from groups including the CBI and the Federation of Small Businesses, it isn’t yet law, and small businesses should plan on the basis of current legislation until it is.
What You Can Do Now
The 1998 Late Payment of Commercial Debts Act already gives small businesses the right to charge statutory interest on overdue B2B invoices at the Bank of England base rate plus 8%, alongside fixed compensation per invoice: £40 on debts under £1,000; £70 on debts of £1,000 to £9,999; and £100 on debts of £10,000 or more, as set out in Section 5A of the Act.
The Small Business Commissioner is also already operational and accepts complaints from small businesses about clients with overdue payments. Given the expanded powers the bill proposes to give the body, building a clear, documented record of payment behaviour now – invoice dates, payment dates and any written communication – provides the strongest possible basis for a future complaint, whether under existing law or the new framework once it passes.
Whether or not the bill reaches Royal Assent in its current form, the right to charge interest and claim fixed compensation has been in law since 1998. What the bill proposes to change is the culture that made so many businesses reluctant to pick them up in the first place.
