5th September 2026
A new Bill progressing through Parliament could change the way businesses are paid, giving smaller companies greater protection against long payment terms and persistent late payers.
For many small business owners, there is a frustrating contradiction at the heart of running a successful business:
You can have plenty of work, plenty of customers and plenty of profit on paper—and still run out of cash.
The reason? Your customers have not paid you.
This is the problem the Commercial Payments Bill [HL] is trying to tackle.
The legislation is progressing through the House of Lords and is designed to improve payment practices between businesses, strengthen protections for smaller suppliers and give the Small Business Commissioner greater powers to deal with poor payment practices.
It could ultimately change the relationship between large customers and the smaller businesses that supply them.
The problem: when your customer becomes your bank
Imagine you run a small business with 10 employees.
You complete a £30,000 contract for a large company. To deliver the work, you have already paid your staff, bought materials, paid subcontractors, covered fuel, rent and other overheads.
You send the £30,000 invoice.
Then you wait.
30 days passes.
Then 60.
Then 90.
The large company still has your £30,000.
Meanwhile, your own bills continue to arrive.
This is one of the fundamental problems with late payment.
The smaller business ends up financing the larger business.
And because many small businesses rely heavily on a relatively small number of customers, challenging a major client can be difficult.
The fear is understandable:
"If I make too much fuss about getting paid, will I lose the customer?"
The proposed legislation is intended to address precisely this imbalance.
What this could mean for your business
The objective is to make it harder for customers to impose excessively long payment periods and easier for smaller businesses to challenge poor payment practices.
A proposed 60-day maximum
One of the key proposals is a maximum 60-day payment period for commercial contracts covered by the legislation.
This could be significant.
Long payment terms have become increasingly common in some industries, with smaller suppliers sometimes accepting them because they have little negotiating power.
The argument behind the Bill is that a small business should not have to accept unreasonable payment terms simply because a much larger customer has greater bargaining power.
There has also been debate in Parliament over whether 60 days goes far enough, with proposals for shorter periods, including 45 or 30 days.
That means the final position is still important to watch as the Bill continues through Parliament.
Stronger powers to help businesses get paid
Changing payment terms is only part of the solution.
The Bill also proposes strengthening the powers of the Small Business Commissioner.
This is potentially one of the most important aspects of the legislation.
For a small business, taking a large customer to court can be daunting.
There are legal costs, management time and uncertainty. There is also the commercial risk of damaging an important customer relationship.
If a small company is owed £10,000 but expects to spend thousands of pounds pursuing it, the legal right to payment may provide little practical comfort.
Stronger powers for the Small Business Commissioner could give smaller businesses a more accessible way of challenging poor payment practices.
Construction businesses could see another major change
The proposed legislation could be particularly significant for the construction sector.
Many construction contracts use retentions, where part of a contractor's payment is held back until the project is completed or certain conditions are satisfied.
For example, a subcontractor might be entitled to £100,000 but have £5,000 held back.
For a large company, that may be manageable.
For a small contractor, having thousands of pounds tied up can make it harder to pay employees, suppliers and other project costs.
The Bill proposes measures to prohibit the use of certain retention arrangements in construction contracts.
For smaller contractors and subcontractors, this could have a direct impact on cash flow.
Construction businesses should pay particular attention
If your business regularly works as a contractor or subcontractor, changes to retention practices could be one of the most important parts of the Bill for you.
Public-sector contracts could also be affected
The Bill also contains provisions relating to public authorities and public construction contracts.
Amendments made during the Lords' committee stage include provisions concerning a 30-day limit for public authorities and public construction contracts.
For smaller businesses supplying councils, Government departments or other public-sector organisations, this could be particularly relevant.
Why does this matter beyond late invoices?
It is tempting to think of late payment as an accounts problem.
It isn't.
It can become a business survival problem.
If a small company is repeatedly waiting months for payment, it may have to:
Use an overdraft.
Take out short-term finance.
Delay hiring.
Put off investment.
Turn down new contracts.
Delay paying its own suppliers.
Reduce stock levels.
Spend management time chasing invoices.
In other words, money that could have been used to grow the business is instead being used to bridge the gap between doing the work and getting paid.
The knock-on effect
There is also a wider economic argument.
Suppose a large company delays paying a £20,000 invoice to a small supplier.
The supplier then struggles to pay its subcontractor.
The subcontractor delays paying its supplier.
That supplier delays another payment.
One late payment can therefore move through an entire supply chain.
The reverse is also true.
Pay businesses promptly and money keeps moving.
Small businesses can pay their employees, suppliers and taxes. They can invest, hire and take on more work.
That is why improving payment practices could have benefits beyond the individual company receiving the invoice payment.
But will the legislation really make a difference?
This is the big question.
Introducing a legal maximum payment period is one thing.
Making sure businesses actually receive their money on time is another.
The effectiveness of the legislation will depend heavily on enforcement.
Small businesses need a system that is:
Fast. Affordable. Simple. And genuinely independent.
If a small company has to spend months and thousands of pounds enforcing a payment right, the legislation may not provide the protection that business owners need.
There is also the question of disputed invoices.
A customer may argue that work was incomplete, defective or not delivered according to the contract.
The legislation therefore needs to distinguish between legitimate commercial disputes and customers simply delaying payment.
What should businesses do now?
The Bill is not yet law, so businesses should not assume that the proposed rules currently apply.
But there is no reason to wait before improving your own payment processes.
1. Review your payment terms
Look at your contracts and ask:
How long am I actually waiting to get paid?
Don't just look at the headline payment period. Consider how long it takes from completing the work to receiving cleared funds in your bank account.
2. Check your biggest customers
Identify which customers regularly pay late.
You may discover that a relatively small number of customers are responsible for most of your cash-flow problems.
That information can help you decide where to focus your credit-control efforts.
3. Look at the real cost of long payment terms
A £50,000 contract paid in 30 days is very different from a £50,000 contract paid in 120 days.
If you have to borrow money to fund the work while waiting for payment, the financing cost effectively reduces the value of the contract.
Payment terms should therefore be considered when deciding whether a contract is genuinely profitable.
4. Invoice immediately
Don't create unnecessary delays yourself.
Send invoices as soon as the contractual requirements allow and make sure they contain all the information your customer needs to approve payment.
A missing purchase-order number or incorrect invoice detail can sometimes add weeks to the process.
5. Don't wait until an invoice is months overdue
Have a clear process for dealing with invoices before they become a serious problem.
A good credit-control process should start before the invoice becomes overdue, rather than waiting until you are already chasing money.
For example:
Confirm when the invoice has been received.
Check that the customer has everything they need to approve payment.
Send a reminder shortly before the due date.
Follow up immediately if the payment becomes overdue.
Keep a written record of all correspondence and promises to pay.
Escalate persistent non-payment rather than allowing the debt to drift.
Consider whether statutory interest, compensation or other contractual remedies may be available.
It is also important to identify repeat late payers.
If the same customer regularly pays 30, 60 or 90 days late, the problem is not simply one overdue invoice—it is a pattern that could have a significant effect on your business's cash flow.
Before accepting further work, consider whether you need to renegotiate the payment terms, request a deposit or staged payments, or reconsider the amount of credit you are prepared to extend to that customer.
The key message is simple:
Don't treat late payment as normal. Put a process in place to manage it.
Progress of the bill at the House of Lords