The end of ‘pay when we feel like it’: what the Commercial Payments Bill means for creditors with unpaid invoices

You did the work. You sent the invoice. You waited. You sent a polite reminder. You waited some more. You sent a slightly less polite reminder. And yet the money is still not in your bank account. If this sounds familiar, you are not alone and you are not powerless.

UK Small and Medium Businesses (SME) are currently owed an average of £66,770 in unpaid invoices each. That is not a rounding error. It is a serious sum sitting in someone else’s bank account, helping their cash flow while damaging yours. Late payment is not just irritating; it can be fatal. Thirty-eight businesses close every day in England and Wales, and late payment is a major contributor when cash flow dries up.

The good news is that, for qualifying business-to-business debts, the law is firmly on your side and has been since 1998, which is longer than some debtors appear to have been “processing” your invoice.

The Act that most businesses ignore (and really should not)

The Late Payment of Commercial Debts (Interest) Act 1998 is one of the most useful pieces of legislation that most business owners have never heard of. It applies to qualifying business-to-business contracts for the supply of goods or services, which may well include your unpaid invoice if the debt is commercial and undisputed.

You do not need a special contract clause. You do not need to have flagged it at the time. You do not need to ask nicely. The rights are just there.

Here is what you are entitled to claim on every overdue commercial invoice:

• Statutory interest at 11.75% per annum. That is 8% above the Bank of England base rate, which currently sits at 3.75%. Interest starts accruing automatically the day after the invoice falls due. Parliament set this rate deliberately high because the intention was to make late payment painful, not merely mildly inconvenient. It is simple interest, which means the longer your customer sits on your invoice, the more expensive their procrastination becomes.
• Fixed compensation per invoice. On top of the interest, you can claim a flat fee: £40 for invoices under £1,000; £70 for invoices between £1,000 and £9,999; and £100 for invoices of £10,000 or more. This is per invoice, not per debtor so if someone owes you money on six invoices, that is potentially £600 in compensation before you have even mentioned the interest.
• Reasonable debt recovery costs. If you incur costs chasing the debt (including legal fees) that exceed the fixed compensation, those additional costs can also be recovered. In simple terms, you can make the other side pay for the privilege of making you chase them.

Most businesses never claim any of this, usually for fear of upsetting the customer. That is an understandable instinct. It is also worth noting that a customer who has owed you money for three months has already upset the relationship considerably, regardless of what either party is pretending.

What to do when the friendly reminder stops working

When informal chasing has run its course, do not let the debt drift. The earlier you move from reminders to a structured recovery process, the better your prospects of recovery.

The first formal step is usually a letter before action: a written demand setting out the amount owed, the due date, the interest now accruing, and a clear deadline for payment. Courts expect to see this before any claim is issued. In practice, a well-drafted letter before action from a solicitor often produces results that a politely worded email from accounts does not. The words “legal proceedings” have a remarkable focusing effect.

If that does not work, you can issue a County Court claim. For undisputed debts under £10,000, this is usually a relatively straightforward process. Larger debts may be allocated to the fast or multi-track. If the claim succeeds, you obtain a judgment and with that judgment comes a toolkit of enforcement options, including attachment of earnings, third party debt orders to intercept funds in the debtor’s bank account, charging orders over property, and High Court Enforcement Officers for larger sums.

For company debtors, there is an additional and particularly effective option: the statutory demand. This is a formal written notice requiring payment of an undisputed debt of at least £750 within 21 days. A company that ignores a statutory demand is presumed under the Insolvency Act 1986 to be unable to pay its debts, which entitles the creditor to present a winding-up petition to the High Court.

The prospect of being wound up, and in particular, the reputational consequences of a petition being advertised in the London Gazette, which tends to cause banks to freeze accounts almost immediately, has a habit of making previously unresponsive debtors extremely responsive.

A word of caution: statutory demands and winding-up petitions should only be used where the debt is genuinely undisputed and you mean business. They are not a bluffing tool.

Before escalating, ask three unglamorous but important questions: is the invoice clearly due, is the debt genuinely undisputed, and can you prove the contract, delivery, reminders and any admission of liability? Glamour is optional; evidence is not.

The cavalry is coming: what the Commercial Payments Bill changes

If you have ever looked at the 1998 Act and thought, “this is all well and good, but large companies can still impose long payment terms”, you are not wrong. For years, larger businesses have used 60, 90, or even 120-day payment terms with smaller suppliers, making the statutory interest regime far less effective because payment, however delayed in practical terms, could still be contractually “on time”.

The Commercial Payments Bill, introduced in the House of Lords in May 2026 and currently progressing through Parliament, is designed to tackle that imbalance. The headline proposals are practical and creditor-friendly:

• A 60-day cap on payment terms for large businesses contracting with smaller suppliers: Contractual terms beyond 60 days are expected to be treated as void or grossly unfair. The era of the 90-day payment clause as standard practice appears to be drawing to a close.
• Mandatory interest: Currently, statutory interest is a right that creditors must choose to invoke and many do not, for the reasons discussed above. The Bill is expected to make interest automatic. It will start accruing whether or not the creditor asks for it, removing the social awkwardness that has long rendered the existing regime less effective than Parliament intended.
• A 30-day invoice dispute deadline: this is perhaps the most significant practical change. Under the proposed rules, a customer who wishes to dispute an invoice would need to do so in writing within 30 days of receiving it. Miss that deadline, and the creditor’s position on interest and enforcement should become stronger, rather than leaving room for the invoice that “never arrived”, the approval process that “takes a while”, or the dispute that materialises conveniently at the 89-day mark.
• Real enforcement powers for the Small Business Commissioner. The Commissioner will gain the ability to investigate persistent late payers, adjudicate disputes, and impose meaningful financial penalties. Large companies will also be required to publish data on their payment practices. Boards of companies with a poor track record will have to explain publicly what they are doing about it.

Royal Assent is anticipated by late 2026, although the final timetable and wording may change. Businesses should check the current parliamentary position before relying on any specific date or detail.

What to do before the new rules arrive

The incoming reforms are good news for businesses. They do not, however, mean you can relax your credit control in the meantime. If anything, businesses with robust processes in place now will be better placed to benefit from the new regime when it arrives.

A few practical steps worth taking now:

• Check that your invoices and standard terms clearly state the payment due date and refer to the 1998 Act. A single sentence:“Statutory interest and compensation apply under the Late Payment of Commercial Debts (Interest) Act 1998” signals that you know your legal position and can move your invoice up the queue in a customer’s accounts payable system.
• Put a formal escalation process in place. A debt that is seven days overdue should trigger a formal follow-up. One that is thirty days overdue should trigger a letter before action. The businesses that recover most effectively are those that treat credit control as a system, not a series of increasingly anxious phone calls.
• If a customer is showing signs of financial difficulty (slower payments, part payments, requests for extended terms) take legal advice early. Once a company enters a formal insolvency process, unsecured creditors frequently recover a small fraction of what they are owed.

We can help

We advise creditors on recovering unpaid commercial debts and protecting their position when a debtor’s financial health looks uncertain.

Whether you are chasing one stubborn invoice or dealing with a customer who has gone quiet, we can review your payment terms, prepare a letter before action, advise whether a statutory demand is appropriate, and help you act before the trail goes colder than the debtor’s last promise to pay.

If you have an unpaid invoice gathering dust, or want your payment terms ready before the new regime arrives, please get in touch.

Written by: Nadia Szumilo, Solicitor, CS Litigation

Please contact us if you would like more information about the issues raised in this article or any aspect of debt recovery on 020 8290 7400 or email info@jpcreditsolutions.co.uk

This article is for general information only and does not constitute legal advice. Please seek specific advice in relation to your own circumstances.