Ministers have introduced the Small Business Protections Bill (formerly the Commercial Payments Bill), marking a historic effort to eradicate late payments and provide critical support to millions of sole traders, freelancers, and family-run firms across the United Kingdom. The legislation delivers the toughest crackdown on late payments in a generation, imposing a clear duty on large firms to pay smaller suppliers on time and granting small businesses the certainty needed to invest, safeguard jobs, and grow their communities.

The scale and impact of late payments

Late payments are a pervasive problem, forcing 38 businesses to close every day due to delayed payments. This equates to 266 closures weekly and over a thousand each month. For business owners, the consequences are immediate and personal – hours spent chasing unpaid invoices detract from running their businesses, putting jobs and livelihoods at risk.

The Bill fundamentally reforms business payment practices by ending excessive delays and unfair practices that disproportionately affect small firms through sweeping new measures.

Here are key provisions of the small business protections bill.

60-Day cap on payment terms. Large firms will be legally required to pay smaller suppliers within 60 days, ensuring timely payments.

Mandatory interest on late payments. Interest will be charged at 8% above the Bank of England base rate on overdue payments, incentivising prompt settlement.

Ban on withholding retention payments. The Bill prohibits the practice of withholding retention payments under construction contracts, a common source of cash flow issues for small contractors.

Enhanced powers for the small business commissioner. The Commissioner will gain authority to investigate poor payment practices, adjudicate disputes, and impose substantial fines, potentially worth tens of millions on persistent late payers.

The Office of the Small Business Commissioner has already recovered more funds for small firms in the past year than in the previous four years combined, demonstrating the effectiveness of enforcement.

Government and leadership quotes

Prime Minister Keir Starmer said, “Small businesses are the backbone of our economy—run by people who take risks, create jobs, and keep communities going. This government is firmly on their side. Too many small business owners spend hours chasing money they are owed, and when payments don’t come through, the cost is personal. Today, we’re changing that with the toughest action on late payments in a generation.”

Business Secretary Peter Kyle highlighted the economic cost of late payments and added, “Costing the UK economy £11 billion every year, late payments choke growth, cost jobs, and force too many good businesses to close. That ends today. Through this landmark bill, we are delivering the toughest payment reforms in over a generation, giving the UK the strongest legal framework in the G7 and backing small businesses with the certainty they need to grow and thrive.”

Minister for Small Business and Economic Transformation Blair McDougall also said, “I’ve spoken to too many business owners who do everything right and still lie awake at night wondering how they’ll pay their staff or cover bills because they haven’t been paid. This Bill stands up for those people, restoring fairness, dignity, and security so small business owners and the self-employed can focus on growing their businesses and the economy.”

The Bill builds upon and strengthens the 1998 Late Payment of Commercial Debt Act, creating the strongest legal framework on late payments in the G7. It requires boards or audit committees of persistently late-paying large companies to publish clear explanations of poor payment performance and the steps being taken to improve it, increasing transparency and accountability.

Tina McKenzie, FSB Policy Chair, added, “Tackling late payment is one of the biggest things the government can do to help small businesses grow. FSB is proud to have worked with ministers on these reforms, and it’s encouraging to see the voice of small firms reflected in legislation. Giving audit committees a clear role in payment practices is a vital step in changing late payment culture.”

Broader government support for small businesses

The legislation is part of a wider government plan to support small businesses and address years of underinvestment. Measures include up to 100% small business rates relief for the smallest premises, shielding firms from costs and halving childcare costs for working families.

It also includes £2,000 incentives for SMEs hiring apprentices, improved access to finance with £4 billion in additional support, and reducing bureaucracy for hospitality, high street, and cultural venues.

Simplifying government contracts and consolidating advice and funding through a new Business Growth Service is also on the list.

This comprehensive approach follows the Prime Minister’s Small Business Plan launched last year, developed in partnership with small firms to make the UK the best place to start and grow a business.