Commercial Payments Bill: A Practical Guide

This article was first published in May 2026. It has now been updated following the publication of draft legislation (the Commercial Payments Bill (Bill)).

According to research carried out by the Small Business Commissioner, late payments cost the UK economy approximately £11b each year and contribute to the closure of around 14,000 businesses annually. As such, the government ran a public consultation from 31 July to 23 October 2025 and published its formal response on 24 March 2026, confirming a package of reforms designed to improve payment practices and act as deterrents to the worst offenders.

The reforms largely build on the existing statutory framework but strengthen it by restricting the ability of purchasers to contract out of key protections and introducing new procedural constraints. For an examination of the Bill's impact on the construction industry, please see our separate article.

The Bill has not yet completed its passage through Parliament, and there is no confirmed implementation date. However, the third reading is scheduled for 20 October 2026. Implementation is expected sometime in 2027, although no dates have been announced.

As the Bill is still progressing through Parliament, a number of details remain subject to change, including the precise length of the maximum payment period, the scope of exemptions and aspects of the enforcement regime. Businesses should therefore keep developments under review.

Statutory interest

At present, the statutory interest rate, which is currently 8% above the Bank of England base rate, applies to a late payment owed under a commercial contract unless the parties expressly contract out of the regime and provide an alternative 'substantial contractual remedy'. In practice, most commercial operators do just that, with rates of anywhere between 2% and 5% above base being typical.

Under the government’s proposals, this freedom to contract out will be removed and all commercial contracts will be required to include the statutory interest rate. This is a significant shift, and notably interventionist in a legal system that is otherwise largely premised on the 'freedom of contract' ethos. Whether suppliers will routinely enforce their statutory entitlement to interest remains to be seen.

Maximum payment terms

The reforms will introduce a maximum payment term on most business-to-business contracts. The proposed maximum payment term is 60 days, but this remains under debate and could be shortened as the Bill progresses through Parliament.

At committee stage, amendments were proposed to the Procurement Act 2023 to align the Act with the Bill. Public authorities and public construction contracts will be subject to a shorter payment window of 30 days. The Bill also contains powers to specify exemptions. While the full list of exemptions is yet to be finalised, confirmed exemptions include:

• contracts where both parties are large companies;
• where the purchaser is the smaller party; and
• where the contract relates to the import or export of goods.

Unlike the interest rate, this maximum payment window will not be a default position, rather a period which cannot be exceeded. Unlike the statutory interest provisions, the maximum payment period is intended to operate as an upper limit rather than a default position. Businesses already working to 30-day payment terms are unlikely to be affected. Those that routinely agree longer payment periods should monitor the Bill's progress and consider whether changes to their standard terms may be required.

Acceptance and verification periods

Contracts where payment depends on inspection or acceptance must usually be completed within 30 days of the supplier carrying out the relevant obligation. A longer period will only be allowed where it is fair and reasonable. Businesses using testing or acceptance procedures, particularly in the technology and software sectors, should review their contracts accordingly to ensure their current arrangements are compliant.

Deadline for disputing invoices received

At present, there is no statutory deadline for disputing an invoice. In practice, some businesses raise disputes shortly before payment becomes due, or even after the payment date has passed, delaying payment while the dispute is resolved.

Under the reforms, if a purchaser fails to dispute an invoice at least eight days before the payment date, or by the payment date where the payment period is 14 days or less, statutory interest will continue to accrue regardless of the merits of the dispute.

Under the Bill, suppliers can recover a fixed sum equal to the higher of £40 or 1% of the contract price, or of the disputed amount if only part is disputed, where a dispute affecting payment is raised late or where sufficient information has not been provided.

Businesses should review both their dispute procedures and their invoicing processes to ensure genuine concerns are identified and raised promptly.

Reporting requirements

Large companies and LLPs falling within the scope of the Reporting on Payment Practices and Performance Regulations 2017 are already required to report on their payment practices. The reforms will extend this obligation, requiring these organisations to report on late payments, including the total amount of statutory interest owed and how much they have paid. This reporting is intended to provide greater transparency around payment practices and highlight any persistent issues.

Those whose payment data demonstrates a pattern of persistent late payment will be required to publish a formal statement on GOV.UK, detailing the measures they plan to introduce to improve their payment practices and responding to any communications received from the Small Business Commissioner.

At the report stage, the proposed restriction limiting certain financial penalties to UK turnover was removed. Businesses should therefore not assume that penalties will be based solely on either UK or worldwide turnover, with the final approach to be determined following consultation.

Businesses should review their payment practices now to reduce the risk of being classified as persistent late payers and to avoid becoming subject to this additional regulatory burden. Doing so may also help businesses maintain or improve their reputation in this area.

What do the reforms mean for existing contracts?

The reforms are not expected to apply to contracts entered into before the new law comes into force. However, the Bill does not yet set out the final commencement and transitional arrangements, so the position remains subject to confirmation.

Enhanced powers for the Small Business Commissioner

The Small Business Commissioner will receive a significant expansion of its existing powers, including:

• the ability to investigate and require businesses to provide information disclosure;
• settle payment disputes;
• recover costs from the businesses concerned, including for investigations and adjudications;
• impose potentially significant fines; and
• conduct compliance checks on data submitted under the 2017 Reporting Regulations.

Committee-stage amendments further clarified and broadened the Small Business Commissioner's powers to recover costs.
The reforms will shift the Commissioner's role from a body that publishes findings to a regulator with real enforcement powers.

What should businesses do now?

At this stage, businesses could consider taking the following preparatory steps:

• review standard terms and conditions to identify:
  • payment windows exceeding 60 days;
  • acceptance testing windows exceeding 30 days;
  • contractual interest provisions that may become unenforceable; and
  • dispute mechanisms that could conflict with the proposed statutory deadlines.
• review invoicing, approval and payment processes to ensure invoices can be assessed and any disputes raised within the proposed time limits; and
• if you are a larger business, assess payment performance data now to identify any risk of being classified as a persistent late payer under the new regime.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.