The Late Payments Bill: what your business needs to know
2026-08-19
Late payment has quietly become one of the biggest threats to business survival in the UK. Government figures put the annual cost to the economy at £11 billion, with dozens of businesses closing every day because cash they were owed hasn't arrived on time.
The tool to fix this — the 1998 Late Payment of Commercial Debts Act — has existed on paper but rarely bitten in practice. That's about to change.
The Commercial Payments Bill, introduced to the House of Lords in May 2026, is the most significant overhaul of UK payment law in a generation. If it clears committee stage and receives Royal Assent as expected, it will reshape how large businesses deal with smaller suppliers. Every finance team should be paying attention now, not after it becomes law.
What's changing
Three provisions matter most. First, a statutory cap of 60 days on payment terms between large businesses and smaller suppliers. Anything longer will simply be void, replaced automatically by a 30-day term. Second, mandatory interest at 8% above the Bank of England base rate on late payments, with the loophole that let parties contract around this closed for good. Third, a formal dispute process: invoices must be challenged with proper supporting detail well before the due date, or the payer faces automatic penalties. On top of this, the Small Business Commissioner gains real enforcement teeth, including a new adjudication scheme and the power to force persistently late-paying boards to publicly explain themselves.
Why this changes the calculus for finance teams
For years, longer payment terms have quietly functioned as a form of free financing: a lever large buyers pulled to manage their own working capital, often at their suppliers' expense. That lever is being removed. Contracts that once ran to 90 or 120 days will need renegotiating. Interest that used to be negotiated away will now be owed automatically. And disputes that were once handled informally, weeks after the fact, will need to be raised and evidenced on a strict timeline.
The businesses that struggle with this transition won't be the ones acting in bad faith — they'll be the ones without visibility. If you don't know which invoices are approaching their statutory deadline, which disputes need raising this week, or how much interest is accruing across your ledger, compliance becomes a matter of luck rather than process.
Where technology fits in
This is precisely the gap that modern accounts receivable software is built to close. Working read-only inside the accounting system you already use — in collects.io's case, Xero — it can show every invoice against its terms, surface disputes early, and show the statutory interest building on your overdue book, rather than leaving it to a spreadsheet months later. Just as importantly, it gives boards and finance directors an auditable record of payment performance: a compliance obligation turned into a demonstrable strength.
The Commercial Payments Bill will reward businesses that treat payment discipline as infrastructure, not admin. Getting the systems right now, before the law bites, is the difference between adapting smoothly and scrambling later.
See it on your own ledger
collects.io starts with two weeks of Visibility, free: every unpaid invoice on your Xero book and why it hasn't been paid, read-only, with nothing sent to your customers. Move to Collect when you want us to resolve and collect — with you in control and every decision logged.