A proposed 60-day payment cap strengthens small tech suppliers’ hand

On 19 May, the government introduced the Commercial Payments Bill in the House of Lords, billed by ministers as the toughest action on late payment in a generation. Under the bill, large firms paying smaller suppliers would face a 60-day cap on payment terms, interest on late invoices would become mandatory at 8% above the Bank of England base rate and the Small Business Commissioner would gain powers to investigate, settle disputes and fine persistent late payers. The Department for Business and Trade says the potential penalties could be worth tens of millions.

The case for change rests on research the department commissioned from London Economics, which estimates that late payments cost the UK economy almost £11bn a year and close about 14,000 businesses annually, or 38 a day. The government’s announcement speaks mostly of sole traders, freelancers and family firms. But the bill also lands on a less obvious group: the small software companies, managed service providers and consultancies that sell technology to much larger customers.

For founders and chief executives of those firms, the question is practical. When the largest customer in the pipeline sends a contract with 90-day terms, what changes now that Parliament is debating a 60-day ceiling, and how should a small supplier use the months before the rules bite?

What the bill does

The government’s overview of the bill, published the same day, lists four main measures. Payment terms will be capped at 60 days, “with strictly limited exemptions”. Interest on late payment will be mandatory at 8% above base rate. Suppliers will gain the right to a fixed sum when a buyer raises a dispute late or without sufficient information. And retention payments in construction contracts will be banned, subject to further consultation on timing.

Enforcement sits with the Small Business Commissioner, who will be able to investigate larger businesses suspected of persistently poor payment practices, adjudicate contractual payment disputes between small and larger businesses outside the courts and make binding interim decisions. Large companies already report on their payment practices every six months. The government plans secondary legislation requiring them to report the interest they have paid and owe, and the boards or audit committees of persistent late payers will have to publish an explanation of their performance and how they will fix it.

“Costing the UK economy £11bn every single year, late payments choke growth, cost jobs, and force too many good businesses to close,” said Peter Kyle, the business secretary.

Emma Jones, the small business commissioner, pointed to the time cost in her statement on the bill, with founders “spending over 86 hours chasing overdue invoices”.

Why it matters for tech suppliers

The London Economics study, based on a YouGov and IFF Research survey of 1,455 businesses, shows that the problem grows with a business’s size. Some 21% of small businesses (10 to 49 staff) and 35% of medium businesses (50 to 249 staff) reported both overdue invoices and payment terms longer than 60 days at the time of the survey, against 12% of micro businesses and 59% of the 57 large businesses surveyed. Across the economy, 28% of businesses are affected each year, and they are owed an average of £17,000 at any one time.

Data from the government’s Longitudinal Small Business Survey, cited in the same report, puts business services among the sectors where late payment hurts most: 9.1% of SMEs in the sector called it a big problem in 2023, second only to construction among the sectors listed, and another 24.9% called it a small problem.

That profile fits many B2B technology firms. A 20-person software company or a 60-person managed service provider is often too small to dictate terms to a bank, retailer or public body, but large enough to have real money tied up in receivables. Its biggest customers are often exactly the large firms the bill targets. Long terms in those contracts work like an interest-free loan from the startup to the enterprise, and for a business funding growth from cash flow, that loan comes straight out of hiring and product spend.

The research also points to a quieter cost. Some 15% of surveyed businesses said they had avoided doing business with specific customers because of how they pay. For a scale-up, turning down a logo is a growth decision as much as a finance one, and the bill may make fewer of those decisions necessary.

The limits of the bill

None of this applies yet. The government says there will be a lead-in period and a transition before the powers take effect, and that the rules will not apply retrospectively: contracts, payments and disputes will be judged by the rules in force at the time. How that treats a multi-year enterprise agreement signed this summer on 90-day terms will depend on the detail, so suppliers should not expect existing contracts to change overnight.

Other gaps remain. The exemptions from the 60-day cap are described only as “strictly limited”, and much depends on how quickly the Small Business Commissioner can investigate and how often it uses its fining powers. Large buyers may respond by tightening the other levers they control, such as purchase order processes, invoice approval and dispute handling, which is where the new fixed sum for late or poorly explained disputes is likely to be tested.

The Federation of Small Businesses, which worked with ministers on the reforms, welcomed the bill. Tina McKenzie, its policy chair, said in the government’s announcement: “Giving audit committees a clear role in payment practices is a vital step in changing late payment culture.” Boardroom scrutiny of payment performance may do more to change behavior at large customers than the threat of fines alone.

What tech leaders should do

The lesson for founders and chief executives is to treat the bill as a negotiating fact now, not a legal fact later. Contract templates should already state 60-day maximum terms and the statutory interest position, and sales teams should know that pushing back on 90- or 120-day terms is now in line with government policy rather than a sign of weakness.

Finance leaders should track days sales outstanding by customer and identify which large accounts consistently pay outside terms. Those accounts will be the first test of the new regime, and the evidence a supplier keeps now will matter if it later takes a dispute to the commissioner.

Leaders of larger tech businesses should look the other way, at their own supply chains. Firms that rely on small subcontractors, specialist consultancies or freelance engineers may themselves count as the large buyer. The requirement for boards to explain poor payment performance in public turns accounts payable into a reputation issue.

The bill will not fix cash flow on its own, and its timetable is still in Parliament’s hands. But the direction is set, and the suppliers that rewrite their terms first will spend less of the next few years chasing money they have already earned.