Late Payment Bill 2026: enforceable 30-day terms, finally?

As we go to press in mid‑2026, the Late Payment Bill sits in the 2025–26 session and has cleared Commons Second Reading, with detailed scrutiny ongoing at Public Bill Committee; government indicates Lords passage in the autumn, with commencement via secondary legislation in stages over 6–12 months thereafter. The Bill’s explanatory notes and impact assessment, published by the Department for Business and Trade (DBT), lean heavily on 2017–24 Payment Practices Reporting (PPR) data and Cabinet Office procurement reforms under the Procurement Act 2023. Expect the Small Business Commissioner (SBC) to be re‑tooled with investigatory and civil penalty powers, replacing today’s largely moral suasion. Timelines matter: even if Royal Assent lands before year‑end, reporting duties and maximum‑term provisions are expected to start with large companies and LLPs first, cascading to large public interest entities (PIEs) and qualifying buyers above Companies Act thresholds, with SMEs remaining beneficiaries rather than subjects of the regime.

The Bill’s core pillars are threefold. First, a hard cap on payment terms: 30 days default for all business‑to‑business invoices, with a 60‑day long‑stop only where both parties expressly agree and the supplier is not a small business. Second, enforcement via statute: late payments automatically accrue interest at the Bank Rate plus eight percentage points (the existing 1998 Act rate), alongside fixed recovery charges and reasonable costs; the SBC can order payment and levy civil fines for systemic breaches. Third, a mandatory expansion of Payment Practices Reporting: large companies and LLPs must report the distribution of payment times by value and volume, the proportion of invoices paid within 30 days, 31–60 days and over 60 days, the percentage of invoices disputed, standard terms offered to SMEs, and whether supply chain finance is used. Public bodies will be required to take PPR metrics into account in tender evaluation and contract management, escalating the commercial consequences of poor payers beyond reputational harm.

The 2017 PPR Regulations forced transparency, not behaviour: qualifying large entities reported twice yearly on average days to pay and percentages paid within 30/60 days. There were criminal offences for non‑filing, but little active enforcement and no obligation to shorten terms. The Prompt Payment Code (PPC), moved under the Small Business Commissioner in 2021, asked signatories to pay 95% of all invoices within 60 days and 95% of SME invoices within 30 days, with suspension for egregious offenders. It was—and remains—voluntary. The 2026 Bill converts soft guidance into mandatory conduct rules. It narrows scope for “acceptable” 90‑day terms, requires disclosure by value (exposing practices where small invoices are paid quickly while large ones linger), pulls dispute rates into the light, and, crucially, couples reporting with sanction: fines, binding payment orders, and procurement consequences. In short: from self‑certified averages and badges to enforceable ceilings and metrics that can’t be gamed as easily.

The £33bn headline is only the stock of overdue invoices at any given moment. The flow cost is nastier. With Bank Rate elevated in 2026, SMEs reliant on overdrafts at, say, base + 6–9% face a carrying cost north of 11–14% APR. On £500,000 of receivables stretched from 30 to 75 days, that’s roughly £62,500–£79,000 a year in financing drag, before management time. Meanwhile, large buyers’ treasury teams sweep supplier float into money market funds yielding 5%+ gross. The arbitrage is systemic: capital is transferred from small to big without compensation. Late payment also inflates insolvencies: Companies House and Insolvency Service data show elevated corporate failures since 2023, with cashflow cited as a leading cause. The 1998 Act’s interest and fixed costs were meant to internalise this externality. They haven’t, because SMEs fear retaliation or losing the next contract if they enforce. Any new law that does not fix incentive alignment—and offer credible, low‑friction enforcement—will disappoint.

Australia’s Payment Times Reporting Scheme (PTRS), live since 2021, compels large businesses to biannual reports on how quickly they pay small business suppliers (turnover under A$10m), with a central public register and a regulator empowered to name and shame and issue infringement notices. It improved transparency but did not, on its own, force 30‑day norms. Firms gamed “day‑zero” definitions, parked invoices in “dispute” buckets, and paid small tickets promptly while stringing out chunky ones. Compliance costs were material; some suppliers reported retaliation after complaints. Australia is now tightening rules to standardise receipt/acceptance triggers and beef up penalties for egregious late‑payers. The UK should copy two things and avoid one: copy the granular distribution reporting and a searchable, API‑driven register; avoid believing sunlight alone changes conduct. Pairing reporting with finable caps—and giving procurers a duty to act on bad metrics—matters more than dashboards.

Drafting hard caps won’t magic away creative lawyering. Expect four escape hatches. One: master services agreements (MSAs) that make “acceptance” contingent on formal sign‑off or a purchase order, stopping the clock until an internal approver acts. Two: expansive dispute clauses that let buyers re‑classify late invoices as “in dispute” for trivial defects, restarting terms. Three: supply chain finance/factoring carve‑outs that present 90‑day terms as benign because suppliers can get paid early—at their own or the buyer’s bank’s discount. Four: self‑billing arrangements that delay invoice issuance. Construction already bans “pay when paid” under the Housing Grants, Construction and Regeneration Act 1996, but other sectors will try functional equivalents. A robust Bill would time‑stamp the trigger at goods delivery or service completion unless a defect is specified, cap acceptance reviews at seven calendar days, and treat disputed amounts narrowly—with the undisputed balance payable on time. The SBC will also need power to pierce structures where group buyers shuffle liabilities to entities outside scope.

You don’t need to wait. The Late Payment of Commercial Debts (Interest) Act 1998 (as amended by the 2002 Regulations and SI 2013/395) already gives you statutory interest at Bank Rate + 8 percentage points on qualifying B2B debts, plus a fixed sum per invoice (£40/£70/£100) and your reasonable recovery costs if the fixed sum doesn’t cover them. You cannot be contracted out of this with a small supplier unless the contract offers a “substantial remedy” for late payment. Put these rights in your contracts and on your invoices, and automate pursuit. If a debtor refuses, HM Courts & Tribunals Service (HMCTS) Money Claim Online and the County Court Business Centre exist for exactly this. For larger undisputed debts and habitual late‑payers, a statutory demand under the Insolvency Act 1986 can focus minds: £750+ for companies (winding‑up), £5,000+ for individuals (bankruptcy). None of this is risk‑free, but not using the tools guarantees you carry someone else’s working capital bill.

Collections works when it’s boringly consistent. Build a weekly cadence: statements out on day 25, chasers on day 31, escalation by day 37, then Letter Before Action (LBA) at day 45. Use accounting software workflows—Xero, QuickBooks, Sage—plus add‑ons like Chaser, Satago or Fluidly for reminders and risk scoring. Feed in external data: Companies House filings (accounts timeliness, qualification, changes of directors or charges), TrustOnline for County Court Judgments (CCJs), the SBC’s published cases, and PPR metrics for large buyers. Train your team to separate relationship management from credit control; a polite, scripted firmness beats “doing a favour.” Keep call notes. Require remittance advices. Reconcile exceptions weekly. And don’t ship big orders to chronically late payers without deposits or milestone billing. Credit insurance from Allianz Trade (Euler Hermes), Atradius or Coface can underwrite exposures, but at 0.3%–1% of turnover you’re still paying for someone else’s terms if you don’t press your rights.

DSO is not an accounting afterthought; it’s your business model. Suppose £2m turnover, 40% gross margin, 20% EBITDA target, and a cost of capital of 12% (overdraft). At 30‑day DSO, average receivables are ~£164k; at 75‑day, ~£410k. The incremental £246k at 12% costs ~£29.5k a year, cutting EBITDA by 1.5 points. Add bad‑debt write‑offs at 0.5% of sales (£10k) and staff time (0.5 FTE at £20k–£25k on‑costs) and you’ve lost a full two points of margin. Invoice finance can bridge the gap—Bibby Financial Services, MarketFinance and Aldermore typically advance 70%–90% of invoice value at 1.5%–3.0% for 30 days plus service fees—but if you hand 2.0% away each month just to endure a customer’s 90‑day habit, your pricing is wrong. Either quote a late‑payer price (and put it in writing) or walk.

Court is a process, not a drama. Start with a clear Letter Before Action complying with the Pre‑Action Protocol for Debt Claims (CPR), giving 30 days to respond and enclosing statements and contracts. File via HMCTS Money Claim Online through the County Court Business Centre; issue fee scales with claim size and can be recovered from the debtor if you win. If undefended, you can request default judgment (a CCJ) after the acknowledgement/defence window closes. Enforcement options include County Court bailiffs (for judgments up to £5,000) or transfer‑up to the High Court for enforcement by High Court Enforcement Officers (HCEOs) for larger sums. For undisputed corporate debts ≥£750, a statutory demand and threat of a winding‑up petition often prompts swift payment, but use judiciously; abuse can backfire. Always weigh the commercial relationship and public‑sector routes (escalating via contracting authority and Cabinet Office) before litigating with government bodies.

Stop guessing. Before onboarding, pull Companies House filings: check whether accounts are overdue, whether auditors have qualified opinions, and whether there are recent changes in directors, registered office or charges (a new floating charge over book debts can signal stress). Run a CCJ search via Registry Trust’s TrustOnline; multiple unsatisfied CCJs are a red flag. For large corporates, read their Payment Practices Reporting portal entry: median days to pay, percentage beyond 60 days, and dispute rates tell you how they treat small suppliers. Cross‑check group structure and cross‑guarantees; trading with a thinly capitalised subsidiary is different from contracting with the parent. For FCA‑regulated buyers (say, fintechs), verify permissions on the FCA Register; regulatory distress spills quickly into payables. For public buyers, check Contracts Finder and tender documents for PPN‑mandated 30‑day terms and the authority’s Supplier Prompt Payment Policy. Document your risk score and link it to credit limits and deposit requirements.

VAT is due on invoice (tax point) for standard accounting, whether you’ve been paid or not. Consider HMRC’s Cash Accounting Scheme if your taxable turnover is within the scheme limit; you pay VAT when cash comes in, easing cashflow. If a debt goes bad, claim VAT Bad Debt Relief once six months have passed from the due date and the amount has been written off in your accounts and remains unpaid; keep evidence of the write‑off and the original VAT accounted. For corporation tax, specific provision for bad debts is deductible; general provisions are not. Interest you charge under the Late Payment Act is taxable income; interest you pay on overdrafts funding receivables is generally deductible. For construction, operate CIS correctly; withholding can mask as late payment—separate the two in reconciliations. Don’t forget data protection: chasing debts uses personal data; ensure your ICO registration and lawful basis under UK GDPR for credit control communications are documented.

Founders rarely lobby, then live with rules designed by those who do. Three asks matter. One: define the payment clock trigger as delivery/completion, not invoice “acceptance,” and cap acceptance at seven days with silence deemed consent. Two: prohibit blanket reclassification of overdue invoices as “in dispute”—require specific reasons, only disputed line items to be paused, and mandate payment of the undisputed balance within term. Three: scale fines to turnover and make PPR metrics procurement‑relevant with automatic scoring penalties for authorities using bad payers. Add two more if you have breath: mandate disclosure of supply chain finance terms and prohibit contract terms that waive statutory interest/costs for small suppliers. Finally, fund the SBC to act like a regulator: own‑initiative investigations, compulsory information‑gathering, and published undertakings. Without resource, the best law is a paper tiger.