Late last year, the UK Government opened a consultation announcing significant proposals to tackle late payment practices as part of a broader plan to stimulate growth within the SME sector (see our earlier article here). The proposed reforms were formalised earlier this year by way of announcement of the Commercial Payments Bill (the “Bill”) in the King’s Speech. The proposed legislation is aimed at strengthening and modernising the rules which currently exist to protect small businesses against the detrimental impact of late payments.

Published: 16 September 2026
Authors: Michelle Craven-Faulkner & Stefanie Hughes

The Bill has undergone committee stage and entered report stage earlier this month, providing a further opportunity for parliamentary scrutiny and amendment.  Whilst various details of the new regime will require secondary legislation, we have set out some of the key elements of the Bill below.

Payment terms capped at 60-days to protect small businesses

Subject to certain exemptions, a 60-day deadline to pay invoices will apply when large businesses enter into contracts to pay smaller businesses.  This position will apply by default, and parties will not be able to vary this under contract.  Certain limited exemptions to the 60-day payment deadline are proposed within the Bill, for example where the smaller party is the purchaser, or where the contract is between two large undertakings.  Secondary legislation will be required to define business sizes for the purposes of any exempted transactions.  Subject to further consultation, there is also an intention to introduce an exemption from maximum payment terms for contracts for imports and exports.  In the event that the purchaser is a public authority, payment terms will be capped at 30 days.  The most recent amendments to the Bill (see here) introduce consequential amendments to the Procurement Act 2023 to simplify the calculation of certain payment dates.

Some concerns have been raised that there is a lack of clarity on the point at which the purchaser is deemed to have discharged its obligation to pay within the deadline.  For example, is the purchaser deemed to have paid when they have instructed payment, or is the obligation only discharged at the point that the supplier receives the funds?  In the latter scenario, purchasers may risk incurring mandatory interest (see further below) if there are banking delays which are outside of their control.

Mandatory and non-negotiable statutory interest on late payments

Interest on late payments will accrue at 8% above the Bank of England base rate, with the Bill providing that contractual terms which seek to exclude or restrict the right to the statutory rate of interest will have no effect.  The Bill also renames the existing Late Payment of Commercial Debts (Interest) Act 1998 as the Commercial Payments and Interest on Late Payment Act 1998, reflecting the broader reform of the regime.

Further detail is required on whether purchasers will be obliged to automatically apply interest on overdue invoices, or whether the onus will be on suppliers to take a proactive approach in claiming any interest.

Time limits for disputing invoices and fixed sum penalties for raising disputes in certain circumstances

The Bill introduces a time limit within which a business must raise an invoice dispute.  This is aimed at preventing a business from raising a dispute in bad faith immediately before the invoice is due under the contract.

The Bill also introduces an implied term into contracts which allows for a supplier to recover a fixed sum from a purchaser where a dispute is raised late or without sufficient information.

Clarity is required as to whether there is a set length of time within which a dispute must be resolved once it has been raised.  If there is no deadline for resolving disputes, businesses could rely on an ongoing, meritless dispute as a basis on which to delay or withhold payment.

Enhanced reporting requirements, and increased board-level accountability for “large” UK companies and LLPs

The new measures mandate greater transparency from such large organisations around their payment performance and practices, and interest owed on late payments.

Strengthened enforcement powers for the Small Business Commissioner (SBC)

The SBC will be equipped with new powers such as the ability to investigate practices, and impose financial penalties for non-compliance with the new rules.

The trigger mechanism which will enable the SBC to initiate an investigation will centre on whether a business has “persistently engaged in poor payment practices”.  Whilst the draft Bill provides some indication of what may constitute poor practice, it remains to be seen what will constitute “persistent” in practice.

Sector-specific reforms

The use of retention clauses within construction contracts will be banned.  For additional detail on these provisions, see our earlier article Retention ban moves a step closer – but what will replace it?

Practical next steps for commercial teams:

• review standard payment terms and identify any arrangements exceeding the anticipated statutory cap
• map and test invoice-to-payment processes to identify bottlenecks and delays and implement systems to mitigate such risks
• implement systems to track payment dates and calculate any interest which may fall due in the event of non-compliance
• strengthen invoice validation and dispute escalation processes to meet any statutory deadlines
• ensure payment data is accurate and capable of supporting enhanced reporting requirements
• consider governance structures, including board-level oversight and audit scrutiny of payment practices.

REFORMS REPRESENT FUNDAMENTAL REGULATORY INTERVENTION

“These reforms represent a fundamental regulatory intervention in commercial payment practices, not a marginal adjustment. The introduction of hard payment caps, coupled with mandatory interest and enhanced enforcement powers, will force large organisations to confront long-entrenched behaviours in their supply chains.  Whilst the policy intent is clear, the operational challenge for businesses should not be underestimated. Payment compliance will become a systems and process issue as much as a legal one. Boards will need to take ownership of payment performance as a matter of financial discipline, reputational risk, and regulatory exposure.  Businesses that fail to adapt quickly will face not only increased cost but meaningful scrutiny from regulators and the market.”