New Late Payment Terms In U.K. B2B Contracts Proposed In Commercial Payments Bill

U.K. business-to-business (B2B) payment terms are changing including by: 

• introducing maximum payment terms of 60 days (subject to limited exceptions)

• preventing variation or exclusion of the statutory interest rate on late payments (currently 8% above Bank of England base rate)

• providing an enhanced sanctions regime including fines for non-compliance.

In-scope businesses will need to review their payment practices and their contracts to ensure compliance once the Bill becomes law and takes effect.

Who will be impacted by the changes?

The U.K. government introduced the Commercial Payments Bill to the House of Lords on May 19, 2026. It amends the Late Payment of Commercial Debts (interest) Act 1998 (LPA) so applies to contracts in scope of the LPA—broadly B2B contracts for the supply of goods and/or services in the U.K. The Bill also amends the Construction Act 1996 as regards late payment terms in construction contracts, but those changes are outside the scope of this article.

What's the existing framework?

The LPA provides a statutory framework for late payments in commercial contracts. It has been supplemented by various regulations and the Fair Payment Code. Among other things, it implies a statutory interest payment to suppliers in B2B contracts for late payment of 8% above Bank of England base rate where the contract is otherwise silent on interest payments. This rate can, however, be varied under the contract.

What's changing?

The Commercial Payments Bill (also referred to as the Small Business Protections Bill in some government communications), will introduce:

Maximum payment period terms

Maximum payment periods will be 60 days for commercial contracts or 30 days where the purchaser is a public authority. The Secretary of State may make regulations to create exemptions to this requirement where:

• both the purchaser and the supplier are large undertakings

• the purchaser is a sole trader and the supplier is not; the purchaser is a micro undertaking the supplier is a small, medium-sized or large undertaking; the purchaser is a small undertaking and the supplier is a medium-sized or large undertaking; or the purchaser is a medium-sized undertaking and the supplier is a large undertaking, or

• as further specified in regulations made by the Secretary of State.

The exemptions will not apply where either the purchaser or supplier is a public authority and will only apply where there is a written contract specifying the exemption being relied upon. Note that these exemptions are not available until they have been introduced under secondary legislation.

Contradictory terms will be void and a 30-day payment term from the latest start date (below) will be implied unless the parties agree another period within the 60-day limit.

The contract must make provision for the maximum payment period to start on one of:

• the day on which the supplier's obligation in respect of which payment is due, is performed

• the last day of a period of hire

• the day on which the purchaser has notice of the amount of the payment (or where the amount is unascertained, the amount claimed by the supplier), or

• the day after the day of completion of an acceptance and verification procedure (e.g. where the purchaser confirms goods or services are satisfactory). In this situation, where there is no specified time for this to take place, a term is implied to the effect that the verification procedure will be deemed to be completed not more than 30 days after performance of the obligation which has to be verified. A term which includes a longer verification period must be fair and reasonable in line with the Unfair Contracts Terms Act 1977 (UCTA).

Statutory interest

The Bill provides that any contractual term purporting to vary or exclude the statutory interest rate of 8% above Bank of England base rate on debts will be void. The Bill also includes details about how to calculate when the debt begins to run.

Late raising of disputes

The Bill amends the LPA to introduce a fixed payment of the higher of GBP 40 or 1% of the contract price (or the disputed part of it) to suppliers where a payment dispute is raised:

• after the last "dispute day" (the first day of a period of eight days ending on the date payment is due, or, where the payment period is 14 days or less, the date payment is due); or

• on or before the last dispute day but the purchaser does not provide the supplier with enough information for the supplier to understand why there is a dispute by the end of the last dispute day.

What are the sanctions for non-compliance?

The Small Business Commissioner is given new powers to investigate poor payment practices and hear disputes via an adjudication scheme (subject to exceptions). Only small businesses can refer payment disputes to the Commissioner under the adjudication scheme, but larger undertakings cannot contract out of participating in it. 

Enforcement action against larger businesses may include:

• making binding decisions

• making recommendations about payment practices

• issuing directions about payment practices

• issuing publication directions to larger businesses requiring them to publish information about their payment practices including poor payment practices, and

• penalties for non-compliance of up to 1% of annual U.K. turnover.

When will the changes take effect?

The Bill is in its early stages. Assuming it takes effect unamended, the majority of the Bill's provisions relating to B2B commercial contracts (rather than construction contracts) will come in under Regulations to be made by the Secretary of State, with some provisions mostly around powers to make secondary legislation, coming in on the day of Royal Assent. However, the government has prioritised this legislation and we do not expect there to be a long delay once the Bill has been enacted.

What will you need to do?

If you purchase or sell goods or services in the U.K. and are subject to the LPA (which will become the Commercial Payments and Interest on Late Payment Act 1998 after the Commercial Payments Bill is passed). You will need to review your contracts and payment processes and may need to make changes once the legislation has been finalised and it's clear when the changes will take place (although the changes will not apply retrospectively). 

One or more of the following will likely apply although the extent to which each is your responsibility will depend on whether you are a purchaser or a supplier, the size of your business, and whether or not you tend to purchase or sell on your own standard terms.

• Change your maximum payment periods in your contractual terms (including in contracts, invoices, and order forms) to align with the new requirements.

• Identify when the maximum payment period starts and update your contracts and invoices to specify.

• If you are relying on a statutory exception to the maximum payment rules, ensure your terms specify which one by reference to the relevant clause of the legislation. You will need to keep track of relevant secondary legislation to understand whether there are available exemptions.

• Review any acceptance and verification processes to ensure they specify a fair and reasonable (in line with UCTA) verification process where this is more than 30 days after performance of the verifiable obligation.

• Remove any existing clauses in contracts, orders or invoices that vary or exclude the statutory rate of interest as these will be void. For the sake of clarity, include the statutory interest on late payments in the terms.

• Ensure you understand rules around late raising of disputes—if you are a supplier, you may be able to claim a fixed payment where late disputes are raised. If you are a purchaser, you need to ensure you raise any payment disputes in a timely manner in order to avoid statutory penalties.

• Review your invoicing/payment, procurement processes, dispute response (or raising) processes, and for larger purchasers, ensure you are prepared (including through payment audit trails) if you are referred by your supplier to the new adjudication scheme of if you are the subject of an investigation, recommendation or direction. 

• Ensure any contractual references to the LPA are updated to reflect the legislation's new name.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.