Ministers have brought forward the Small Business Protections Bill, formally the Commercial Payments Bill, with a promise to make late payment a far more expensive habit for large companies. Introduced in the House of Lords on Tuesday 19 May, the proposal is aimed at sole traders, freelancers and family firms that often end up funding bigger customers while they wait to be paid. For smaller businesses, this is a cashflow story before it is a political one. An unpaid invoice can quickly turn into pressure on wages, rent, tax bills and stock orders, which is why the government is presenting the bill as a direct intervention in growth rather than a narrow piece of contract law.

At the centre of the bill is a 60-day cap on payment terms where large firms buy from smaller suppliers. It would also make late-payment interest compulsory at 8 percentage points above the Bank of England base rate, removing some of the ambiguity that has allowed overdue invoices to drift. The construction sector is also in scope. Ministers want to stop the use of retentions, where part of a payment is held back under construction contracts, a practice many subcontractors argue leaves them carrying a disproportionate share of the financial strain.

Enforcement is where the proposal becomes more than a signal. According to the Department for Business and Trade, the Small Business Commissioner would gain powers to investigate poor payment behaviour, adjudicate disputes and fine persistent offenders, with potential penalties running into tens of millions of pounds. Large companies with consistently weak payment records would also face more public scrutiny. Boards or audit committees would be expected to explain poor performance and set out what they are doing to improve it, adding a reputational cost alongside the financial one. The department says the Office of the Small Business Commissioner recovered more money for small firms in the last year than in the previous four years combined, which ministers are using as evidence that a stronger watchdog could have real bite.

The case for action is easy to see. Government-backed research says late payment contributes to 38 business closures a day, while ministers put the wider hit to the UK economy at £11 billion a year. Those figures help explain why small business groups have pushed for tougher rules for years. The damage is rarely abstract. Owners lose time chasing invoices, delay hiring, cut investment and sometimes use expensive short-term borrowing to bridge the gap. Across supply chains, that weakens confidence well beyond the original unpaid bill.

Prime Minister Keir Starmer and Business Secretary Peter Kyle have framed the legislation as the toughest late-payment package in more than a generation, and the Federation of Small Businesses has backed the direction of travel. FSB policy chair Tina McKenzie said the reforms reflect long-running concerns from small firms and welcomed the clearer role for audit committees. That said, the government's claim that this will create the strongest legal framework in the G7 will be tested in practice, not by ministerial language. The speed of investigations, the size of fines and the willingness to act against repeat offenders will decide whether behaviour actually changes.

For SMEs, the immediate takeaway is that payment terms may start to look less negotiable when the customer is a large corporate. If the bill becomes law, smaller suppliers would have a firmer basis for challenging long settlement periods, and finance teams may want to revisit contracts, invoice wording and credit-control processes early. Larger firms, meanwhile, may need to rethink payment systems that have treated supplier finance as a source of cheap working capital. Companies with stretched internal approval chains or a habit of pushing payment beyond agreed dates could face both higher costs and sharper governance questions.

The bill also sits within a wider government pitch to small businesses that includes rates relief, apprenticeship incentives, easier access to finance and a new Business Growth Service. Ministers are clearly trying to connect late-payment reform with a wider pro-growth message after a period marked by high inflation, tighter borrowing conditions and weak business confidence. For now, though, Parliament is only at the starting point. If the legislation passes in anything close to its current form, it would mark one of the biggest shifts in supplier payment rules since the 1998 Late Payment of Commercial Debts Act. For smaller firms tired of acting as unwilling lenders to bigger customers, that would be a meaningful change.