What are the UK's new late payment rules and when will they come into force?

The government has introduced landmark legislation to tackle late payments. It is a moment that years of sustained campaigning by IPSE, our members, and other small business organisations have helped bring about. Here is what the proposed rules would mean for you, and what happens next. 

Late payment is one of the most damaging and enduring problems facing the self-employed. According to IPSE's own research, over half of freelancers (54%) have experienced a delay in payment from a client during their self-employed career. More concerningly, one in five (20%) have found themselves without the money to cover basic living costs such as rent and bills as a direct result. 

Previous measures, including the Late Payment of Commercial Debt Act 1998 and the creation of the Small Business Commissioner, did not go far enough. Freelancers could charge interest on late invoices but there was no cap on payment terms, no mandatory enforcement, and no power to proactively investigate or fine persistent late payers. Large businesses were largely able to continue setting their own rules.

We have been calling on successive governments to act on this for years, making the case that the self-employed deserve the same basic protection as any other worker when it comes to being paid on time for work they have already done.

The government's decision to introduce the Commercial Payments Bill, formerly known as the Small Business Protections (Late Payments) Bill, is a direct result of that pressure. It must still pass through Parliament, but the proposed measures are among the most significant reforms to late payment law in over 25 years.  

The Commercial Payments Bill is proposed legislation designed to reform how businesses are required to pay their suppliers, particularly smaller firms and the self-employed. 

Rather than starting from scratch, it builds directly on the Late Payment of Commercial Debt Act 1998, strengthening its provisions in three key areas: introducing hard limits on payment terms for the first time, making interest on late payments automatic rather than something freelancers must choose to pursue, and giving the Small Business Commissioner genuine enforcement powers to go after persistent offenders.

A 60 day cap on payment terms

Large firms would be legally required to pay smaller suppliers within 60 days, regardless of what their existing payment terms say. It is unfortunately common practice for big businesses to impose payment terms of 90 days or more, effectively using their suppliers as a source of interest-free credit. The 60-day cap would put a firm legal limit on this, with the goal of reducing it further to 45 days within five years.

Mandatory interest on late payments

If a client misses the payment deadline, they would be required to pay interest on the overdue amount at a rate of 8% above the Bank of England base rate. This is a meaningful deterrent. Under current rules, freelancers technically have the right to charge interest on late invoices, but in practice many feel uncomfortable doing so for fear of damaging the client relationship. Making interest mandatory removes that awkward negotiation entirely and places the obligation firmly on the late payer, where it belongs.

A time limit for disputing invoices

One of the most welcome measures is a new statutory time limit for raising invoice disputes. If a client has not raised a dispute within 30 days, they would be required to pay compensation to their supplier. This directly tackles a tactic that many IPSE members know all too well: the last-minute or fabricated dispute that conveniently appears only when payment becomes due.

Stronger powers for the Small Business Commissioner

The Small Business Commissioner would receive significant new powers, including the ability to investigate poor payment practices, adjudicate disputes between businesses, and fine persistent late payers. We have long called for the Commissioner to be able to proactively investigate late payers rather than waiting to react to complaints, so we are pleased to see this being addressed.

A ban on retention payments in construction

For contractors working in construction, the Bill also proposes to ban the practice of withholding retention payments under construction contracts. Retentions, where a percentage of payment is held back until full project completion, have long been a source of financial hardship and dispute in the sector.

New reporting requirements for large companies

Finally, large companies with a history of persistent late payments would be required to have their boards or audit committees report on poor payment performance and set out what actions they intend to take to address it. This is designed to push late payment up the corporate agenda and make senior leaders directly accountable.

We welcome the fact that the government has listened to the case that IPSE and our members have been making for years. We have consistently argued that the self-employed should not have to choose between chasing payment and protecting client relationships. These proposals begin to rebalance that dynamic.

That said, it is important to be clear about what the Bill would and would not do. These reforms will not solve every payment problem, particularly disputes around whether work has been delivered to the required standard or whether contractual milestones have been met. Good contracts and clear payment terms will remain as important as ever.

But these reforms should bring a meaningful level of certainty to getting paid. No longer should large businesses be able to persistently delay paying invoices without consequence. The prospect of mandatory interest and potential fines should act as a serious deterrent.

It is also welcome to see the government acknowledge that further action is needed on payment terms, with its announcement of an ambition to reduce these to 45 days within the next five years. We will continue to advocate for a 30-day maximum, particularly given that technological advancements have made paying an invoice as simple as a single click.

If we’re being honest, hopefully before the end of this year.

The Commercial Payments Bill had its first reading in the House of Lords on 19 May 2026. A date for the general debate has not yet been scheduled. The Bill must still pass through all its parliamentary stages before it can become law, and the government has confirmed it will provide an appropriate lead-in period before the new powers come into force, giving businesses time to prepare.

We will continue to track the Bill's progress closely and update this page as things develop. If you want to stay on top of the latest developments, we will make sure to keep our members and the wider network updated as part of our bi-weekly newsletter.

While we wait for the legislation to pass, your existing rights still matter. Under the Late Payment of Commercial Debt Act 1998, you already have the right to charge statutory interest on overdue invoices and claim compensation for recovery costs. Many freelancers do not exercise these rights, but they are there and you can read more about them as part of guide to dealing with late payments.

In the meantime, the best protection remains a clear, well-drafted contract with explicit payment terms, invoicing milestones, and a defined dispute process. IPSE members have access to a range of contract templates and resources to help with exactly this.

If a client is persistently refusing to pay, the Small Business Commissioner can already help in some cases, and the small claims court remains an option for recovering debts up to £10,000.