UK Commercial Payments Bill 2026: Proposed Changes to Business Contracts

The UK Commercial Payments Bill 2026 proposes significant changes to business payment terms, late-payment interest and the handling of invoice disputes. The legislation is intended to address persistent late payments, particularly where smaller suppliers depend on larger customers to settle invoices.

The Bill has completed its passage through the House of Lords and is now before the House of Commons. It has not received Royal Assent and should not be treated as legislation currently in force. In a parliamentary answer published on 19 October 2026, the Government indicated that most measures are expected to commence in late 2027 or early 2028, subject to parliamentary approval and the required secondary legislation. Construction retention provisions are expected to have a separate commencement timetable.

The proposed changes matter to companies that negotiate extended payment periods, rely on contractual interest provisions, use invoice approval procedures or operate in the construction supply chain.

The change in one sentence: The UK Commercial Payments Bill proposes a 60-day ceiling on covered business payment terms, mandatory statutory interest on late commercial payments and stronger enforcement powers to address poor payment practices.

What is the UK Commercial Payments Bill?

The Commercial Payments Bill is a government-backed legislative proposal designed to improve payment practices between businesses. It follows a government consultation on late payments and aims to strengthen the existing legal framework governing commercial debts.

The Bill would introduce new requirements for payment terms and interest, address late invoice disputes, prohibit specified construction retention practices and expand the powers of the Small Business Commissioner.

The measures are not yet operative law. Their final scope, exceptions and implementation arrangements remain subject to the legislative process and, where applicable, secondary legislation.

Key proposed changes to commercial contracts

1. A proposed 60-day limit on payment terms

The Bill proposes a maximum payment period of 60 days for covered business-to-business contracts, with limited exemptions. The Government’s stated objective is to prevent larger purchasers from imposing excessively long payment periods on smaller suppliers.

For businesses that routinely negotiate 60-day terms, the proposal may have limited immediate impact if their arrangements fall within the final rules. Companies using 90-day or longer payment periods should pay closer attention.

The cap is intended to operate as a maximum, not as a standard payment period that every contract must use. Businesses would remain able to agree shorter terms.

Contract review point: Identify agreements containing payment periods longer than 60 days. Check the parties’ size and roles, the nature of the transaction and any applicable exemption before deciding whether a clause would need to change.

2. Mandatory interest on late commercial payments

The Bill proposes requiring statutory interest on late commercial payments at 8% above the Bank of England base rate. It would remove the ability to avoid that statutory position through contractual arrangements that currently substitute an alternative remedy.

This could affect standard terms that provide a lower interest rate or seek to replace statutory late-payment interest with another contractual remedy.

Businesses should review their payment and interest clauses rather than assume that existing wording will remain suitable if the proposals become law.

Contract review point: Identify clauses dealing with late-payment interest, contractual remedies, recovery costs and the interaction between statutory rights and agreed terms. Do not amend current agreements on the assumption that the Bill is already in force.

3. New consequences for late invoice disputes

The Bill proposes rules intended to discourage purchasers from raising invoice disputes late or without sufficient information.

Under the proposed framework, suppliers would be entitled to a fixed sum in specified circumstances involving late disputes or inadequate information. The detailed operation of the requirements will depend on the enacted legislation and relevant regulations.

For businesses, the issue is not simply whether an invoice can be challenged. It is whether the internal process identifies genuine errors promptly, communicates the grounds for a dispute and records the relevant dates.

Contract review point: Check invoice receipt procedures, dispute notification clauses, supporting-document requirements and escalation routes. Ensure that operational teams can raise genuine disputes within the applicable contractual and future statutory time limits.

4. Proposed restrictions on construction retention payments

The Bill also proposes prohibiting the deduction and withholding of retention payments under construction contracts. The Government has indicated that these provisions will have a separate commencement timetable to allow the industry to prepare and develop alternative arrangements.

This could have implications for construction contracts in which a portion of the contract price is retained to secure performance, completion or the correction of defects.

Businesses should not assume that every existing retention clause is already prohibited. The proposed restriction, its commencement and the final statutory wording must be checked before taking action.

Contract review point: Construction businesses should identify retention clauses across their standard forms and subcontracting arrangements. They should also assess how the proposed change could affect cash flow, payment milestones, defect rectification and security for contractual performance.

5. Stronger powers for the Small Business Commissioner

The Bill proposes expanding the Small Business Commissioner’s role in addressing poor payment practices.

The proposed powers include investigating larger businesses suspected of persistent non-compliance, making recommendations, taking specified enforcement action and adjudicating certain payment disputes between smaller suppliers and larger businesses outside the courts. The Bill also provides for stronger enforcement of payment-practice reporting requirements.

These proposals could change how qualifying payment disputes are handled and increase the compliance risks for businesses with persistent late-payment problems.

Companies should monitor the final scope of the Commissioner’s powers and the eligibility conditions for any dispute-resolution process.

6. Additional reporting for large businesses

The Bill proposes additional reporting requirements for large companies and limited liability partnerships covered by the relevant reporting regime.

The planned changes include reporting on statutory interest owed and paid. Boards or audit committees of businesses identified as persistently late-paying would also be required to publish commentary on poor payment performance and steps being taken to improve it.

This would make payment practices more visible and could bring greater scrutiny to a company’s supplier relationships.

Finance teams should review whether their systems can accurately record invoice due dates, payment dates, disputed amounts and interest liabilities.

Current law versus proposed changes

The table summarises the proposed direction of travel. It is not a substitute for checking the final Act, commencement regulations and any applicable transitional provisions.

What businesses should do now

Businesses do not need to treat the Bill as though it has already changed their contractual obligations. They can, however, prepare for the proposed reforms.

1. Audit payment terms. List standard customer and supplier agreements with payment periods exceeding 60 days.
2. Review interest clauses. Identify wording that sets a lower interest rate or substitutes another remedy for statutory late-payment interest.
3. Check invoice dispute procedures. Confirm that the finance and commercial teams can identify, document and raise genuine disputes promptly.
4. Review construction contracts. Map retention clauses and consider the commercial impact of the proposed prohibition.
5. Improve payment records. Ensure invoice receipt, approval, dispute, due-date and settlement data can be retrieved accurately.
6. Monitor the Bill’s progress. Check the final legislation, regulations, exemptions and commencement dates before making changes intended to ensure statutory compliance.

Businesses negotiating new long-term contracts may also wish to draft payment provisions with the proposed framework in mind. Any such drafting should distinguish current legal obligations from anticipated future requirements.

What happens next?

The Bill must continue through the House of Commons and complete the remaining legislative stages before it can receive Royal Assent. Further legislation or regulations may be required to implement particular provisions.

The Government’s current indication is that most measures are expected to commence in late 2027 or early 2028, subject to parliamentary approval and the necessary secondary legislation. Construction retention provisions will follow a separate timetable.

Businesses should therefore avoid announcing a fixed implementation date until it has been formally confirmed. The final wording and commencement arrangements may also affect which contracts and payments are covered.

Frequently asked questions

Is the UK Commercial Payments Bill 2026 already law?

No. As of 24 October 2026, the Bill has completed its passage through the House of Lords and is before the House of Commons. It has not received Royal Assent.

Will all UK business contracts be limited to 60-day payment terms?

The proposal is for a maximum payment period in covered business-to-business contracts, with limited exemptions. It should not be described as applying identically to every commercial contract. The final legislation and regulations will determine the scope.

Will businesses have to pay 8% interest on every late invoice?

The Bill proposes mandatory statutory interest at 8% above the Bank of England base rate for covered late commercial payments. The precise application will depend on the final statutory provisions and the relevant circumstances.

Does the Bill immediately invalidate existing payment clauses?

No. The Bill is not yet law. The Government has stated that the reforms will not apply retrospectively and that payments, contracts and disputes will be judged under the rules applicable at the relevant time. Businesses should review the final legislation and transitional arrangements before determining the effect on a particular agreement.

What should suppliers do before the reforms commence?

Suppliers should maintain clear contracts, accurate invoices and records of delivery, acceptance, payment due dates and correspondence about disputes. They should also review existing late-payment remedies and monitor the Bill’s progress.

When will the proposed reforms take effect?

The Government has indicated that most measures are expected in late 2027 or early 2028, subject to parliamentary approval, Royal Assent and the necessary secondary legislation. Construction retention provisions are expected to commence separately.

Official sources

1. UK Government — Commercial Payments Bill: overview
   https://www.gov.uk/government/publications/commercial-payments-bill-factsheets/commercial-payments-bill-overview
2. UK Parliament — Commercial Payments Bill
   https://bills.parliament.uk/bills/4128
3. UK Parliament — Lords completes examination of Commercial Payments Bill, 21 October 2026
   https://www.parliament.uk/business/news/2026/october-2026/lords-completes-examination-of-commercial-payments-bill/
4. UK Parliament — Government answer on expected commencement, 19 October 2026
   https://questions-statements.parliament.uk/written-questions/detail/2026-10-09/33379

Source review date: 24 October 2026.

This article provides general legal information, not advice on a specific contract or dispute. The Bill remains subject to parliamentary scrutiny, and businesses should verify the final legislation and commencement provisions before relying on any proposed change.