The Commercial Payments Bill has moved through its second reading in the House of Lords, putting late payment reform back in front of small firms that spend too much time chasing invoices instead of running their business.
The debate matters because the Bill is designed to change the rules around how larger firms pay smaller suppliers. It is not law yet, and the detail may still change as Parliament examines it, but the direction is clear: ministers want tougher payment terms, stronger enforcement and a more active role for the Small Business Commissioner.
What happened
The House of Lords debated the main principles of the Commercial Payments Bill at second reading on 9 June. Parliament says the Bill would strengthen existing late payment laws, ban retention clauses in the construction sector and expand the Small Business Commissioner’s powers to resolve payment disputes.
The Department for Business and Trade has described the package as the toughest late payment crackdown in more than 25 years. Its announcement says the reforms include a 60-day cap on payment terms for large firms paying smaller suppliers, mandatory interest on late payments at 8% above the Bank of England base rate, and action on construction retentions.
The Small Business Commissioner has also highlighted planned powers to investigate suspected poor payment practices, adjudicate payment disputes outside the court process and levy financial penalties on persistent late payers. The Bill also points towards more public accountability for large firms with poor payment performance.
Why it matters for small businesses
For many SMEs, late payment is not an abstract policy issue. It affects payroll, supplier relationships, tax bills, rent, stock buying and the owner’s ability to plan. A profitable order can still create stress if the cash arrives weeks or months after the work is done.
The government’s figures say late payments cost the UK economy around 11 billion pounds a year and are linked to thousands of business closures. Even where a business survives, the time spent chasing money is time not spent selling, serving customers, improving systems or training staff.
The proposed 60-day cap is especially relevant for firms that supply larger customers and feel pressure to accept long payment terms in order to win work. If the Bill progresses in its current direction, small suppliers may eventually have a clearer legal framework to point to when negotiating terms or challenging slow payment behaviour.
Construction firms should watch the retention proposals closely. Retentions have long been a sore point for small contractors and subcontractors because money can be held back after work is complete, sometimes for long periods and sometimes through no fault of the supplier. A ban or major restriction would change how cash is managed through project chains.
What SMEs should check now
The Bill is still going through Parliament, so small firms should avoid treating the proposals as current law. The practical step now is preparation: understand how exposed the business is to slow-paying customers, and where new rules could strengthen the firm’s position once they are confirmed.
Start with payment terms. Review standard contracts, quote templates, onboarding emails and invoice wording. Make sure they are clear, consistent and easy to evidence. If different teams use different terms, tidy that up before any new regime lands.
Next, review your debtor book. Identify customers who regularly pay late, query invoices late in the process, or require repeated chasing. Keep a record of due dates, reminder dates, disputes and responses. If future complaint or adjudication routes become more powerful, good records will matter.
SMEs should also consider whether credit control is too informal. A polite but structured process can include agreed reminder timings, escalation points, named contacts and a clear decision on when further work is paused. This is not only about enforcement; it is about protecting working capital before a problem becomes a crisis.
For firms supplying large businesses, it may be worth mapping which contracts contain terms longer than 60 days, which customers use portals that delay invoice approval, and which contracts contain clauses that make disputes hard to resolve quickly.
What to watch next
The next stages will decide how the final rules work in practice, including scope, exemptions, enforcement and timing. SMEs should watch for committee scrutiny, government amendments and guidance from the Small Business Commissioner.
The key point for owners is not to wait passively. Better invoice discipline, clearer terms and stronger records will help whether or not the Bill changes. If the reforms do become law, firms that already know their payment risks will be better placed to use the new protections quickly and confidently.
Sources: UK Parliament, Department for Business and Trade, Office of the Small Business Commissioner.
