The Commercial Payments Bill is new legislation, introduced to Parliament on 19 May 2026, that will cap business-to-business payment terms at 60 days, make late payment interest of 8% above the Bank of England base rate mandatory on every commercial contract, and give the Small Business Commissioner real powers to investigate and fine persistent late payers. If your business sells to larger companies, it is the most significant change to how you get paid in over 25 years.
The government calls it the toughest crackdown on late payments in a generation, and the framing is hard to argue with: late payment costs the UK economy around £11 billion a year, and roughly 38 businesses close their doors every day partly because of it. This guide explains what the Bill actually does, when it is likely to bite, and the practical steps worth taking now rather than waiting for it to become law.
Where the Bill Came From
This did not appear out of nowhere. Between 31 July and 23 October 2025, the Department for Business and Trade ran a public consultation on tackling poor payment practices. It drew 867 responses from businesses of every size and sector, and on 24 March 2026 the government published its response setting out the legislative approach. The Bill that entered the House of Lords on 19 May 2026 is the result, with its second reading taking place on 9 June.
The thinking behind it is simple. For decades, the UK has relied on voluntary measures such as the Prompt Payment Code and reporting requirements to shame large companies into paying on time. They have not worked well enough. The Bill swaps persuasion for hard rules, and that is why it matters so much to anyone running a smaller business on the receiving end of long or unreliable payment terms.
The 60-Day Payment Cap
The headline measure is a maximum payment term of 60 days for business-to-business contracts. At the moment, a large customer can write 90-day or even 120-day terms into a contract and a smaller supplier, desperate for the work, will often sign. Under the Bill, terms beyond 60 days will no longer be enforceable in most cases.
There are strictly limited exemptions. The cap is aimed squarely at the imbalance between large buyers and smaller suppliers, so the government has carved out flexibility where both parties are large companies, where the purchaser is the smaller party, and for certain import and export arrangements. The point is to protect the business that lacks the bargaining power to push back, not to micromanage deals between equals.
For a smaller supplier, the effect is direct. Consider Priya, who runs a commercial cleaning company in Leeds turning over £900,000 a year. Her largest contract is with a national facilities group that pays on 90-day terms. On a typical month’s invoicing of £40,000, those extra 30 days beyond a 60-day standard tie up roughly £40,000 of her cash at any given time — money she currently funds through an overdraft. Once the cap is in force, that contract would have to settle within 60 days, releasing a month of working capital she has effectively been lending her customer for free.
Mandatory Statutory Interest
The second major change concerns statutory interest. UK businesses already have the right to charge interest on overdue invoices at the Bank of England base rate plus 8% under the Late Payment of Commercial Debts (Interest) Act 1998 — currently 11.75% a year. The problem is that most never do, because asking a valued customer for interest feels like picking a fight.
The Bill changes the default. Every commercial contract will be required to contain the right to statutory interest, and any term that tries to vary it downwards or exclude it altogether will simply be void. In other words, the interest becomes a baked-in feature of the contract rather than something you have to summon the nerve to invoke. You can read more about how the underlying calculation works in our guide to late payment interest under UK law.
The numbers add up faster than people expect. Take Tom, who runs a signage manufacturer in Bristol. He raises a £25,000 invoice on 60-day terms and the customer pays 40 days late. At 11.75% a year, that overdue balance accrues interest of roughly £8 a day, so by the time the cheque arrives Tom is owed about £320 in interest on that one invoice — on top of the fixed compensation the Act already provides. Across a year of late payers, the figure stops being a rounding error and starts being a real line in the accounts.
A Fairer Deal on Disputes
One of the oldest tricks for delaying payment is the late or vague dispute: the invoice sits untouched until day 58, at which point the buyer suddenly raises a query that resets the clock. The Bill tackles this by giving suppliers the right to a fixed sum where a purchaser raises a dispute late or without sufficient information.
This is a small clause with a big behavioural effect. If querying an invoice at the last minute starts to cost the buyer money, the incentive to use disputes as a stalling tactic disappears. For suppliers, it means a genuine query can still be raised — but it has to be made promptly and backed by detail, not deployed as a delaying weapon.
The Retentions Ban in Construction
If you work in construction, this is the clause to watch. The Bill prohibits the deduction and withholding of retention payments under a construction contract. Retentions — where a main contractor holds back typically 3% to 5% of a sub-contractor’s payment for months or years against possible defects — have trapped cash in the construction supply chain for generations, and a meaningful share of it is never released at all.
Banning the practice would hand working capital straight back to sub-contractors, who are among the most cash-stressed businesses in the country. The government has said it will consult further on the timing of implementation, so this particular measure is likely to arrive later than the rest, but the direction of travel is clear.
Picture a groundworks firm in Manchester turning over £2 million a year, with around £70,000 of retentions sitting unreleased across half a dozen completed projects at any one time. Chasing that money is a constant administrative drain, and some of it quietly evaporates when main contractors fold. Removing retentions altogether would convert that £70,000 from a hope into cash in the bank — though it may also push contractors to seek security in other ways, such as performance bonds, so the change is not pure upside for everyone.
Stronger Powers for the Small Business Commissioner
Rules mean nothing without enforcement, and this is where the Bill has the most teeth. The Small Business Commissioner (SBC) gains a genuinely new role. The Commissioner will be able to investigate larger businesses suspected of persistently paying poorly, make formal directions, and impose financial penalties where appropriate. Ministers have briefed that fines for the worst offenders could run into the tens of millions.
The SBC will also be able to adjudicate payment disputes between small and large businesses outside the court process and issue binding interim decisions. For a small supplier, that is significant: until now, enforcing a payment right meant the cost, delay and relationship damage of going to court. An out-of-court route that produces a binding decision lowers the barrier dramatically.
Alongside this, the largest companies and LLPs — already required to report on their payment practices every six months — will face new reporting requirements, including disclosing the interest they have paid and the interest they owe. Boards of persistently late-paying large companies will have to publish commentary explaining why their performance is poor and what they are doing about it. Sunlight, in other words, with a financial sting attached.
When Will It Actually Apply?
Here is the important caveat: none of this is law yet. The Bill is still working its way through the House of Lords, with committee and report stages to come before it reaches the Commons and finally receives Royal Assent. The government has promised an appropriate lead-in time and a transition period before the powers come into force, so businesses can prepare.
Realistically, that points to commencement no earlier than late 2026 and more likely during 2027, with the construction retentions ban potentially later still given the additional consultation. Crucially, the measures will not be applied retrospectively — contracts and disputes will be judged by the rules in place at the time. So a 90-day contract signed today is not automatically void, but new and renewed contracts will increasingly need to anticipate the cap.
What to Do Now
You do not need to wait for Royal Assent to benefit from the direction this is heading. A handful of practical moves will put your business in a stronger position whether the Bill passes quickly or slowly.
Start by auditing your contracts. Identify every customer paying you on terms longer than 60 days and flag those agreements for renegotiation at the next renewal. The Bill gives you a credible, government-backed reason to ask for shorter terms — use it as leverage now rather than waiting for the law to force the issue.
Next, get comfortable with statutory interest before it becomes automatic. Make sure your invoices and contracts already state your right to charge interest and compensation, and actually apply it to your worst offenders. Treating it as routine now means the transition to mandatory interest will be seamless rather than a culture shock for your customers.
If you are in construction, begin tracking your outstanding retentions in one place — amount, project, contractor, and the date each is due for release. When the ban lands you will want to claim what you are owed cleanly, and a tidy record is the difference between getting paid and getting fobbed off. It also tells you exactly how much cash is currently locked up, which is worth knowing regardless.
Finally, model the cash impact. Work out how much working capital is tied up in customers who pay beyond 60 days, and what comes back to you if those terms tighten. For many SMEs the answer is a month or more of revenue — a transformational amount of cash that, under this Bill, is finally heading in the right direction.