The UK's Toughest Late Payment Law in 25 Years Won't Land Until 2027

On 24 March, the government announced what it called the strongest legal framework on late payments in the G7 — a hard 60-day cap on B2B payment terms, mandatory 8% statutory interest above the Bank of England base rate, and Small Business Commissioner powers to fine repeat offenders into the tens of millions. It is the first material rewrite of the 1998 Late Payment of Commercial Debts Act in a generation.

The catch: per Mayer Brown's reading of the official consultation response, the government will "legislate as soon as Parliamentary time allows" — with implementation expected no earlier than 2027.

If you're a UK SME owner, that gap is the whole story. Late payments are already forcing 38 businesses to close every single day and costing the UK economy £11 billion a year. Waiting 18 months for a new statute to fix your cash flow is not a strategy.

What 42% of SMEs Already Did Last Year

Bibby Financial Services' Q1 2026 SME Confidence Tracker, published in February, is the clearest snapshot of how late payments are actually landing on small businesses right now:

Derek Ryan, Managing Director at Bibby Financial Services, put it plainly: "Late payments are draining confidence from small businesses and holding back growth."

That confidence drop — 15 points in two quarters — is happening at the same time as average projected SME investment fell 24% year-on-year, from £270,377 to £205,915. Cash that should be funding new equipment, hiring, and expansion is being absorbed by the working-capital gap their customers are creating.

What the New Law Actually Does

Once it lands, the regime is genuinely strong. The headline provisions as set out by the Department for Business and Trade:

• A hard 60-day cap on B2B payment terms for large firms paying smaller suppliers (limited exemptions for large-to-large contracts, where the smaller party is the buyer, and import/export deals)
• Mandatory 8% statutory interest above the Bank of England base rate, plus a £100 compensation fee per late invoice — and crucially, parties cannot contract out of this
• Board-level transparency: large companies must publish payment performance explanations in annual reports, with audit committees on the hook
• Fining powers for the Small Business Commissioner — investigating, adjudicating outside the courts, and issuing fines worth tens of millions
• Construction sector reform: a proposed ban on retention payment withholding (still under consultation)

Peter Kyle, Business Secretary, framed it directly: "Far too many businesses are forced to shut down because they have not been paid – that is simply unacceptable." Emma Jones CBE, the Small Business Commissioner appointed in June 2025 to lead the late payment crackdown, will be the official with new statutory teeth to enforce it.

So the political will is real, the drafting is serious, and the framework is — on paper — the toughest in the G7. The problem is purely sequencing. The consultation closed on 23 October 2025, the response came on 24 March 2026, and primary legislation has not yet been introduced.

The 2026–2027 Cash-Flow Gap

Between now and whenever the law actually bites, three things are quietly making the squeeze worse, not better:

1. Customers are getting slower, not faster. 62% of SMEs in the Bibby tracker say their customers take longer to pay than a year ago. The mere announcement of new rules has not changed payment behaviour — and in some cases is encouraging large buyers to lengthen terms one last time before the cap arrives.

2. The cost base is rising in lockstep. The April 2026 wage and NIC changes already added £25,850 in annual employment costs to a nine-person business, and US tariffs are imposing £17,000 of extra cost on the average exporter. Late receivables are landing on a P&L that is already absorbing more cost than it has in a decade.

3. Bank credit is still being rationed for the smallest businesses. 56% of SME loan applications to high-street banks are being rejected, and the Bank of England's Q1 2026 Credit Conditions Survey showed default rates on unsecured lending rising — meaning lenders are pricing risk up at exactly the moment many SMEs need to bridge.

The practical upshot: a business with £66,770 stuck in unpaid invoices, a £25,850 increase in payroll costs, and a 50/50 chance of an unsecured loan rejection cannot wait 18 months for Westminster.

Where Capital Is Actually Coming From: Invoice Finance

This is the gap that invoice finance was built for, and the UK market is already deploying it at scale. The numbers tell the story:

• Roughly £21 billion is advanced against UK invoices at any given moment, with the market financing hundreds of billions in annual turnover
• About 45,000 UK businesses currently use some form of invoice finance — close to 1% of all UK businesses
• Provider revenues are projected to reach ~£4 billion in 2025–26, growing 3–4% per year

Mechanically, invoice finance advances 80–95% of the value of an unpaid invoice on the day you raise it, and releases the balance (minus a fee) when your customer pays. It turns 60- or 90-day payment terms into same-day cash, without requiring property security and without the 4–6 week waiting period that comes with a high-street loan application.

There are two main shapes. Factoring is disclosed — the lender collects payment from your customers directly and runs your credit control. Invoice discounting is confidential — your customers don't know finance is in place, and you keep collection in-house. Larger and more established SMEs typically choose discounting; younger businesses without a dedicated credit function often start with factoring.

Crucially, invoice finance scales with your revenue rather than being a fixed limit set by a credit committee at point of approval. As your sales grow, your funding line grows automatically. That dynamic is the opposite of an overdraft, which gets renegotiated downward at exactly the moment a business is under pressure.

The independent providers are the ones actually growing — Bibby Financial Services is the largest of them and has been gaining share as banks pull back from the smaller end of the market. Mid-tier specialists are now leading the segment, while the bank-owned invoice finance arms have shrunk from around 110 charges per month in 2024 to under 80 in early 2026.

The Sectors Where This Matters Most

Manufacturing is the canary. 48% of manufacturing SMEs were prevented from paying staff on time in the last year, and 36% experienced irrecoverable bad debt — both materially worse than the all-sector averages. Construction is the other obvious case: the proposed ban on retention payment withholding is in the new regime precisely because retentions have become a structural cash-flow problem for sub-contractors. Tim Gelardi, Director of Systems & Compliance at FORT Builders' Merchant, told Bibby: "We are seeing more customers struggling to pay in line with terms."

For these sectors, the calculus is simple. The new law will eventually reduce the frequency of late payments and increase the cost to payers when they do happen. It will not retrospectively repair a 2026 cash-flow gap. Invoice finance does that today.

What to Do Between Now and 2027

If late payments are visibly affecting your business, three moves change the picture:

1. Map the real cost of your receivables, not the headline figure. £66,770 of unpaid invoices does not just sit on your balance sheet — it is funding your customers' working capital while constraining yours. Multiply by your gross margin to get the true profit cost; for many SMEs, that exceeds the 1–5% effective fee of an invoice finance facility.

2. Match the funding tool to the cash-flow shape. Invoice finance suits businesses with regular B2B receivables. Where the gap is structural rather than cyclical — for example, you are absorbing tariff cost or rising payroll — an unsecured business loan or VAT/tax loan may be a cleaner instrument. A whole-of-market broker can put both options on the table side-by-side.

3. Apply through more than one lender at once. The single most expensive mistake SMEs still make is applying direct to the high street, getting rejected, and stopping. A whole-of-market application places you in front of 20–30+ specialist lenders simultaneously — challenger banks, fintech invoice finance providers, asset finance houses — without multiple hard credit searches. The mechanics of a modern SME finance application look nothing like a branch visit.

The Bank of England's next rate decision is on 30 April, with markets split between hold and hike. Whichever way it lands, the new statutory interest rate of 8% over base will track it — meaning the cost of being a late payer is moving up as the cost of borrowing to bridge late receivables is roughly stable.

The Bottom Line

The UK is genuinely about to get the toughest late payment law in the G7. That is good news. But it is 2027 news, and it does not change the cash on your balance sheet next month. The businesses that come out of this period in the strongest position will be the ones that treat unpaid invoices as a financing problem with an immediate solution, not a regulatory problem to wait out.

If late payments are squeezing your business, get in touch — we work with the UK's main invoice finance providers as a whole-of-market broker, with no upfront fees and a soft-search-first process. We'll come back within 24 hours with indicative terms for both invoice finance and complementary working-capital options.

Further reading: The April SME Cost Squeeze · Allica Just Grew SME Lending 23% · There's £80bn to Fight Tariffs — Why Aren't UK SMEs Using It? · What is an Unsecured Business Loan?