The UK Commercial Payments Bill – also referred to as the Small Business Protections Bill – was introduced in the House of Lords on 19 May 2026 and received its second reading on 9 June 2026. If enacted, it will impose a 60-day cap on business-to-business payment terms across the United Kingdom, make late payment interest at 8% over the Bank of England base rate non-excludable by contract, and strengthen enforcement through an expanded Small Business Commissioner. The Bill is not yet law and is not expected to come into force before 2027, but businesses with UK trading relationships should begin reviewing their contracts and credit control procedures now.
What the Bill Proposes to Change
Late payment remains a significant structural problem in the UK economy. Research from the Department for Business and Trade and the Office of the Small Business Commissioner estimates that unpaid invoice cycles cost the UK economy nearly GBP 11 billion a year, placing sustained cash-flow pressure on suppliers and creditors of all sizes. The Commercial Payments Bill is Parliament's most direct legislative response to that problem in over a decade.
The central measures in the Bill as introduced are:
- 60-day maximum payment terms for business-to-business contracts, with a shorter 30-day cap applying to public authorities. Limited exemptions may be created by secondary regulations, but the scope of those exemptions has not yet been defined.
- Mandatory, non-excludable late payment interest at a rate of 8 percentage points above the Bank of England base rate. Contracting parties will no longer be able to waive or reduce this entitlement by agreement.
- A ban on construction retentions, addressing a long-standing practice in the construction sector whereby main contractors withhold a proportion of sub-contractor payments, sometimes indefinitely.
- Expanded powers for the Small Business Commissioner to investigate complaints, adjudicate disputes, and impose fines on businesses that are persistent late payers.
It is important to note that the Bill, as currently drafted, applies to UK-to-UK commercial transactions. Cross-border contracts in which one party is not established in the United Kingdom are not directly within its scope, though supply-chain effects will inevitably reach international counterparties.
Where the Bill Stands Procedurally
The Bill completed its second reading in the House of Lords on 9 June 2026. It must still pass through Committee Stage, Report Stage and Third Reading in the Lords, then proceed through equivalent stages in the House of Commons, before receiving Royal Assent. The Government has not announced a target date for Royal Assent, and entry into force is not anticipated before 2027. Implementation regulations – including any exemptions to the 60-day cap – will follow separately and their content remains pending.
Businesses should therefore treat the current position as a period of legislative certainty on direction, but uncertainty on detail. The core obligations are unlikely to be removed at later stages; the precise carve-outs and transitional provisions are still subject to parliamentary and regulatory process.
Who Is Affected – and How
The most immediate exposure falls on larger buyers in UK supply chains: any business that currently relies on payment terms exceeding 60 days will face mandatory renegotiation once the legislation is in force. For international companies, the relevant questions are:
- Do you supply goods or services to UK-established entities under UK-law contracts? Your UK counterparty's payment obligations will be capped, which may benefit your cash-flow position as a creditor.
- Do you source from UK suppliers or sub-contractors? Your payment schedule may need to be restructured before the law takes effect to avoid exposure to mandatory interest and potential Small Business Commissioner investigations.
- Are you involved in UK construction projects? The proposed retention ban will require contract amendments and may affect how project finance and performance security are structured.
- Do your group treasury or intercompany arrangements involve UK entities? Even intra-group payment policies set above 60 days may fall within scope, depending on how the implementing regulations define exempt arrangements.
Companies registered at Companies House and regulated entities subject to the FCA or OFSI compliance frameworks should also consider whether their existing payment practice reporting obligations (under the Payment Practices and Performance Regulations) interact with the new Bill's enforcement mechanisms.
Enforcement Landscape Once the Bill Is in Force
The expanded Small Business Commissioner will have investigative and adjudicatory powers, and the ability to fine repeat offenders. This represents a shift from the current regime, which relies largely on creditor-initiated debt recovery proceedings. Under the existing framework, a creditor pursuing an unpaid invoice typically proceeds through a payment order or County Court/High Court claim, with enforcement of judgment against the debtor's assets – including, in appropriate cases, asset freezing orders under the Civil Procedure Rules (CPR). Those private law routes remain available and unaffected by the Bill.
The Bill adds a parallel public enforcement layer: a regulator with the power to act even where an individual creditor has not brought a claim. This is significant for large buyers that operate diffuse supply chains, because exposure to investigation will not depend on whether any single supplier chooses to litigate. Businesses already familiar with late payment interest claims and debt collection proceedings should understand that the Commissioner's fining power is a separate and additional risk.
If you would like to understand how the Bill's enforcement provisions interact with your existing contracts or credit control policies, our team is available to assist. Please write to info@ferrazwhitmore.com or visit our contacts page.
Five Immediate Actions for International Companies
Although the Bill will not become law before 2027, the parliamentary timetable creates a practical window for preparation. We recommend that international companies with UK commercial exposure consider the following steps now:
- Audit existing payment terms. Map all UK-law contracts and identify those containing payment periods longer than 60 days. Prioritise high-value and long-duration agreements where renegotiation will take time.
- Review standard terms and conditions. Any contractual provision that purports to exclude or limit late payment interest will be void once the Bill is in force. Update template agreements before they are used for new contracts.
- Assess construction and infrastructure projects. If your UK operations involve sub-contracting or project delivery, model the cash-flow impact of the proposed retention ban and consider whether security arrangements need to be restructured.
- Engage your finance and treasury teams. Intercompany payment cycles and group treasury policies should be reviewed in light of the anticipated scope of implementing regulations, which may address intra-group arrangements.
- Monitor the legislative timetable. Committee Stage amendments may alter exemption thresholds or introduce transitional periods. Designate a responsible person to track progress and trigger internal review when Royal Assent is announced.
For a more detailed analysis of standard payment term practice in the UK and how the Bill sits within the wider regulatory context, see our in-depth guide at UK Commercial Payments Bill – Standard Payment Terms in the United Kingdom.
Interaction with Existing Debt Recovery and Insolvency Procedures
The Bill does not alter the established routes for enforcing payment obligations that are already overdue. Creditors owed money by UK counterparties can continue to use statutory demands, County Court or High Court claims, payment orders under the CPR, and – where a debtor is insolvent – formal insolvency processes. Our UK debt recovery practice covers the full range of enforcement tools available to international creditors, from pre-action correspondence through to judgment enforcement and, where appropriate, cross-border recognition of awards.
Where a UK counterparty is facing genuine financial distress rather than strategic late payment, the distinction between a payment dispute and an insolvency situation becomes critical. Early advice on whether to pursue contractual remedies or to consider insolvency-related options can materially affect the creditor's recovery position. Our UK restructuring and insolvency team works alongside our disputes colleagues on exactly these cases.
What to Do Now
The Commercial Payments Bill signals a clear direction of travel for UK commercial payment regulation. Businesses that begin internal preparation during the parliamentary process will be better placed to comply on day one than those that wait for Royal Assent. The areas of greatest immediate priority – payment term audits, standard terms revision, and construction retention modelling – require co-ordination across legal, finance and procurement functions and take longer to complete than many organisations anticipate.
Ferraz & Whitmore advises international businesses on UK contract law, commercial disputes, and regulatory compliance. If you would like to discuss the implications of the Bill for your specific arrangements, please contact our team at info@ferrazwhitmore.com or through our contacts page.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.