Small Business Protections (Late Payments) Bill

Announced in the King’s Speech on 13 May 2026, the Small Business Protections (Late Payments) Bill is expected to become law within the next 12 months and marks a significant shift in how payment practices are regulated.

Current draft legislation indicates a focus on transactions from large to small and medium sized businesses, including a 60 day cap on payment terms, mandatory late payment interest rate set at the Bank of England base rate plus 8%, and enhanced investigative powers for the Small Business Commissioner.

For affected organisations, early action will be critical – both to assess the potential cash flow impact and to identify mitigations and any incremental funding requirements.

We set out below what the announced legislation means, and what you should be doing now to manage the impact.

If you’d like to discuss how this could affect your business, please get in touch to see how we can help.

Jenny Shutt

Partner

KPMG in the UK

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Timeline of existing legislation on payment practices

1998
2008
2017
2023
2024-2025

The Late Payment of Commercial Debts (Interest) Act 1998 is introduced, limiting payment terms to 60 days unless explicitly negotiated and not “grossly unfair”.

The Prompt Payment Code (2008) is introduced, providing a voluntary set of standards for good payment practices; including paying 95% of invoices within 60 days and 95% of invoices to small businesses within 30 days.

The Reporting on Payment Practices and Performance Regulations 2018 (PPPR) is implemented, requiring large businesses to self-report on payment behaviour twice per year. Metrics include average time to pay invoices, proportion of invoices paid with 30d, 31-60d, >60d, and the % of late payments.

The Procurement Act 2023 requires businesses bidding for government contracts of over £5m to demonstrate they pay invoices in an average of 55 days or less and pay at least 90% of invoices within 30 days. The average tightened to 45 days in April 2025, with the aim of reducing further to 30 days.

In 2024 changes are made to PPPR to require businesses to publish metrics on invoices paid within different timeframes, and the value of invoices paid late. This was followed by further legislation in 2025 which brought in a new requirement relating to retentions on qualifying construction contracts.

Upcoming legislation announced in the King’s Speech

Following a consultation over Summer 2025, the Small Business Protections (Late Payments) Bill was announced in the King’s Speech on 13 May 2026.

The Government has confirmed it will bring in legislation which will tighten existing requirements on late payments and reporting.

The announced legislation is expected to be debated during 2026 and implemented by early 2027.

We are awaiting clarity on the specifics of the Bill. It is currently in first draft, to be debated in the House of Commons and House of Lords during 2026.

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Purpose

The legislation is designed to address some of the challenges with legacy legislation and to reduce poor payment practices. The Department for Business & Trade (DBT) wants the UK to have the strongest legal framework on late payments in the G7, and to reduce business failure due to poor payment practices.

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Announcement and eligibility

On 13 May 2026 the King announced the introduction of the Small Business Protections (Late Payments) Bill; the Bill will now enter the parliamentary system as primary legislation.

The measures apply to large businesses. Whilst these are not defined in the draft Bill, the current definition is those meeting at least two of >£54m turnover, >£27m balance sheet and >250 employees.

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Expected timeline

The Bill needs to pass through the Parliamentary process in both the House of Commons and the House of Lords. There are three readings of the Bill, along with committees, amendments and Royal Assent. The speed at which the legislation passes depends on the sequencing of legislation in Parliament, and the complexity of the debate; most Bill’s pass within twelve months.

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Proposed legislation

The proposed measures (detailed below) focus on capping maximum payment terms, increased reporting requirements, and increased investigative powers for the SBC, including the ability to issue fines for persistent late payers. The current drafting of the Bill implies that it will focus on payments from large businesses to SME suppliers.

What is being proposed and what does it mean for businesses?

Next steps for businesses covered by legislation

Review the current position

Understand if current supplier payments are compliant with proposed legislation.
If the Bill applies to payments to SMEs only, suppliers will need to be segmented into SMEs and large entities.
Review current PPPR filings for completeness and accuracy.

Calculate the impact of the proposed measures

If the current position is not aligned with the proposed measures, it is critical to calculate the working capital impact of compliance.
This will focus on understanding the cash and P&L impact, along with balancing cash and compliance.
There may be some offset where the proposed measures lead to customers paying earlier.

Identify potential mitigations

A review of accounts payable may identify areas of opportunity which could offset the cost of compliance.
Other working capital opportunities should be explored to reduce any funding requirement associated with compliance. This will include customer compliance with the new measures.

Manage incremental funding requirements

Should working capital mitigations be insufficient to offset the cash impact of the proposed late payment measures, additional steps will need to be taken to manage the funding requirement.
These may include negotiating with existing lenders, refinancing, cost reduction and disposal of non-core assets.

How can we support clients in managing the proposed measures?

Should you be filing PPPR reports?
Are current filings aligned with recently updated guidance?
Are suppliers segmented into SMEs and large corporates?
Are current payment practices likely to comply with the upcoming legislation?
Do filings need to be made in relation to historic periods?

What will the cash impact of reducing average days to pay be?
Will the reduced dispute timeline be impacted? Are more rigorous dispute resolution procedures needed?
Is there an expected offset (likely partial) from customers paying earlier?
Is the net cash impact material, and does it create a funding requirement?
Are there likely to be additional costs associated with late payment interest?

Managing existing working capital is critical; this can be through optimising accounts payable, receivable and inventory.
A full working capital diagnostic will identify the potential cash improvement opportunities which may be required to ensure the proposed measures do not create an incremental funding requirement.
Should an incremental funding requirement exist, it is critical to take immediate action. We can support in negotiating with existing lenders, refinancing to a new lender, rapid cost reduction, and disposal of non-core assets.