Late payment reform turns payment terms into a working capital compliance issue

The UK’s Commercial Payments Bill is turning payment terms into a working capital compliance issue for large businesses and their smaller suppliers.

The bill, published in May, is designed to tackle late payment to small and medium-sized businesses. Government guidance says late payments cost the UK economy £11bn a year and are linked to the closure of 38 businesses every day.

The proposed reforms include measures to strengthen payment discipline between businesses, with greater accountability for poor payment practices. Separate guidance from the Small Business Commissioner describes the bill as the most significant reform of payment practices in more than 25 years.

The issue remains highly relevant in July because companies are now assessing how the proposed framework could affect contract terms, supplier management and cash flow planning.

For smaller suppliers, the potential benefit is more predictable cash collection. Late payment does not only reduce liquidity. It also increases administrative burden, weakens forecasting and can force SMEs to rely on overdrafts, short-term loans or invoice finance to bridge the gap between delivery and payment.

For large businesses, the reforms could require more disciplined procurement, finance and dispute-management processes. Payment performance is increasingly moving from a back-office issue to a governance and reputational risk.

The change also matters for receivables finance providers. If payment behaviour improves, some suppliers may face less pressure to fund overdue invoices. But stronger payment transparency could also make receivables finance more attractive by improving data quality and reducing uncertainty around debtor behaviour.

The practical impact will depend on the final legislation and enforcement approach. Even so, the direction is clear: payment terms are becoming more closely linked to policy, compliance and working capital strategy.

For banks, factors and advisers, that creates both risk and opportunity. Businesses will need to understand how payment practices affect liquidity, supplier resilience and access to finance.