King's Speech 2026: Small Business Protections (Late Payments) Bill

Small Business Protections (Late Payments) Bill

“Legislation will be introduced to tackle late payments”

● The scourge of late payments costs the UK economy £11 billion each year
and leads to the closure of 38 UK businesses every day. Delivering on a key
manifesto commitment, this Bill will be the most significant legislation to tackle
late payments in over 25 years and will give the UK the strongest legal
framework on late payments in the G7.

● These measures are at the centre of the Government’s ambition to make the
UK the best place in world to start, run, and grow a business – a place where
businesses and the millions of self-employed people are paid on time for the
goods and services they deliver, a place where money flows quickly through
supply chains, and a place where small companies and the self-employed
spend their time and resources running their businesses effectively instead of
chasing unpaid invoices.

● The vast majority of large companies already do the right thing by their
suppliers, and these reforms are deliberately targeted at firms that persistently
engage in poor payment practices. This will help deliver a more productive
economy and support small businesses to survive, thrive and grow.

What does the Bill do?

● There are three main ways that businesses delay payments to small and
medium-sized enterprises (SMEs), including: late payments after the agreed
payment date; long payment terms, where businesses are pushed to accept
long payment agreements; and frivolous disputes, where purchasers raise
disputes without foundation in order to delay payment. This Bill tackles these
late payments between businesses and improves the flow of cash through
supply chains, facilitating a more productive economy.

● The Bill will:

○ Impose maximum payment terms of 60 days, with strictly limited
exemptions (when both parties are large companies, when the purchaser
is the smaller party, or when the goods or services are being imported or
exported).

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 ○ Enforce mandatory interest for late payments at eight per cent above
the Bank of England base rate.

○ Introduce a time limit for raising invoice disputes, before payment is
due.

○ Require boards or audit committees of persistently late-paying large
companies to publish commentary on poor payment performance
and intended actions to address it.

○ Give the Small Business Commissioner new powers to: investigate
businesses suspected of conducting poor payment practices; adjudicate
disputes between businesses outside of the court process; and fine
businesses that persistently pay their suppliers late or fail to comply with
the legislation.

○ Take targeted action on the construction sector to ban the practice of
deducting and withholding retention payments under construction
contracts.

● The measures apply only to UK-to-UK business transactions and do not
affect global supply chains or international trade.

Territorial extent and application

● The Bill will extend and apply to the whole of the UK.

Key facts

● Late payments have a significant impact on the UK economy, leading to
the closure of 14,000 businesses per year, equivalent to 38 businesses every
day, according to research by the Department for Business and Trade
published in July 2025.

● An average business spends 86 hours per year chasing late payments.
According to the same research, businesses are owed £26 billion in late
payments at any given time, which is an average of £17,000 per business
affected by late payment.

● The Bill will complement other initiatives from the Small Business
Commissioner to promote a better payment culture, including the highly
successful Fair Payment Code, which as of April 2026 has over 580 awardees
including numerous large businesses.

● The Small Business Commissioner recovered over £1.55 million in late
payments for small businesses in the 2025-26 financial year. This is more
than was recovered in the previous four years combined, and four times the

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 previous year. Since the Small Business Commissioner was established, the
office has recovered over £10 million for small businesses.

● Chair of Policy and Advocacy at the Federation of Small Businesses,
Tina McKenzie MBE said “Late payments are a blight on our economy, so
FSB is pleased to have worked in partnership with the Government to deliver
the toughest legislation in the G7. The new laws will finally bring a stop to big
businesses using their small suppliers as sources of free credit.”

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