Paid In 60 Days: The Government’s New Commercial Payments Bill Aims To Crack Down On Late Payments Across UK Supply Chains

The Commercial Payments Bill, introduced to the House of Lords in May 2026, proposes to cap payment terms at 60 days, void non-compliant clauses, and arm the Small Business Commissioner with wider enforcement powers.

Businesses in sectors with extended supply chains (such as consumer goods, hospitality, retail, sport, and media) should audit existing supplier contracts now. Any payment terms exceeding 60 days will be rendered void under the new regime, and affected arrangements should be renegotiated ahead of the payment term cap coming into effect (expected no earlier than 2027).

Larger buyers should not assume existing supplier relationships will remain unaffected: the Bill’s transparency requirements and the Commissioner’s enhanced enforcement powers are designed to strengthen smaller suppliers’ bargaining position in payment negotiations.

Construction businesses will need to evaluate how the new restrictions on retention payments affect projects currently in progress or contemplation and explore alternative security mechanisms before the two-year transition period expires. Larger businesses will also need to invest in improved payment tracking systems and internal compliance protocols to meet the heightened reporting obligations.

The key reforms are as follows.

Mandatory payment term

The Bill imposes a statutory maximum payment period of 60 days for commercial contracts, reduced to 30 days where the purchaser is a public authority. Any contractual payment terms that exceed these limits will be void. Importantly, the Bill also mandates specified trigger dates from which the payment period must start, preventing purchasers from circumventing the cap through artificially delayed start dates.

Limited exemptions

Narrow exemptions to the 60-day payment cap include contracts where the purchaser is the smaller party, contracts where both parties are large undertakings, and contracts of a description specified by the Secretary of State in further regulations. These exemptions do not apply where either party is a public authority, and any reliance on an exemption must be set out expressly in a written contract.

Mandatory interest on late payments

The Bill makes it an implied term of all commercial contracts in scope that late payments will attract simple interest at 8% above the Bank of England base rate. Contractual terms that seek to exclude or vary this right will be void.

Prohibiting retention payments in construction contracts

Construction contracts commonly allow clients to retain a percentage of sums due to the contractor as security for defect rectification and project completion. Under the Bill, after a two-year transition period, new and pre-existing payment retention clauses in construction contracts will be void. Following that transition period, the Bill also grants payees an implied right to a fixed sum on top of statutory interest and late payment compensation.

Small Business Commissioner powers strengthened

The Bill significantly expands the role of the Small Business Commissioner. The Commissioner will be responsible for establishing an adjudication scheme through which it may hear and determine payment disputes between small and larger businesses and make binding interim decisions. With such disputes, only the small business may refer a dispute, and any contractual term imposed by the larger company purporting to exclude the adjudication scheme will be void.

The Commissioner will also gain new investigatory and enforcement powers. These include the ability to make recommendations, require the publication of payment practices, and issue directions. Critically, for persistent late payment practices or disregard of formal enforcement directions, the Commissioner may impose financial penalties of up to 1% of a business’s annual UK turnover.

Enhanced reporting transparency for large companies

Large companies are already required under the Reporting on Payment Practices and Performance Regulations 2017 (RPPP) to publish reports twice per financial year, covering their standard payment terms, average days to pay, and the percentage of payments made within specified periods, in an attempt to deter poor payment practices.

The Bill strengthens this regime by empowering the Commissioner to take enforcement action against companies that breach their reporting duties. It is also proposed that the RPPP Regulations will be amended to require reporting on the value of statutory interest liable and actually paid on late payments.

In addition, boards or audit committees of persistently late-paying large companies will be required to publish commentary explaining why their payment performance is poor and what steps are being taken to address such poor performance.

We will supplement this update as the Bill progresses through the various legislative stages.

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.