Late payment is estimated to cost the UK economy nearly GBP 11 billion a year, and Parliament is now moving to address the problem through the Commercial Payments Bill (also referred to as the Small Business Protections Bill), introduced in the House of Lords on 19 May 2026. The Bill proposes mandatory payment deadlines, non-excludable late payment interest, and expanded enforcement powers for the Small Business Commissioner. The legislation is not yet in force – it is not expected to take effect before 2027 – but international companies with UK counterparties should understand its likely impact now and review their existing credit and collection arrangements accordingly.
Background: Why GBP 11 Billion Matters
Research published by the Department for Business and Trade and the Office of the Small Business Commissioner puts the annual cost of late payment to the UK economy at close to GBP 11 billion. This figure captures lost productivity, the administrative burden of chasing unpaid invoices, and the downstream insolvency risk for smaller suppliers. For international companies, the number signals a systemic risk: a trading partner that routinely delays payment may be managing its own cash-flow problems, and the cumulative effect across a supply chain can be significant.
Debt collection in the UK has long relied on a combination of statutory remedies under the Late Payment of Commercial Debts (Interest) Act 1998, civil enforcement through the courts, and – where insolvency is threatened – restructuring procedures. The proposed legislation would strengthen and, in some respects, replace parts of that framework. Understanding both the current rules and the incoming reform is essential for any international creditor active in this market.
What the Commercial Payments Bill Proposes
The Bill completed its second reading in the House of Lords on 9 June 2026. Its core measures, if enacted, would include:
- A 60-day cap on payment terms for business-to-business contracts, with a stricter 30-day cap where the buyer is a public authority. Limited exemptions may be permitted by secondary regulations, but the principal cap would be non-negotiable.
- Mandatory, non-excludable late payment interest calculated at 8 percentage points over the Bank of England base rate. Contractual clauses that attempt to reduce or waive this entitlement would be void.
- A ban on construction retentions – a practice by which main contractors withhold a percentage of a subcontractor's payment as security against defects. This has long been identified as a major cause of cash-flow stress in the construction sector.
- Expanded powers for the Small Business Commissioner, including the ability to investigate persistent late payers, adjudicate disputes, and impose fines. This represents a meaningful shift from the Commissioner's current advisory and signposting role.
It is important to note that these provisions are proposed for UK-to-UK business relationships. Cross-border contracts where one party is based outside the UK will not automatically fall within the Bill's scope, though the knock-on effect on domestic supply chains will be felt by any international company that buys from or sells to UK entities.
You can read our related analysis on the Small Business Commissioner's anticipated fining powers at UK Small Business Commissioner set to gain fining powers.
The Current Legal Landscape: Tools Available Now
While the Bill moves through Parliament, the existing framework remains the operative one. International creditors with unpaid invoices against UK debtors have several routes available.
Statutory late payment interest already exists under the 1998 Act, but the contractual rate (or the absence of one) can reduce its practical value. Ensuring that contracts include an explicit, compliant interest clause is a straightforward protective step.
Civil proceedings and payment orders are available through the English and Welsh courts. Depending on the amount and complexity, a claim may proceed through the County Court or the High Court, with the latter offering faster enforcement options against assets of meaningful value. The Civil Procedure Rules (CPR) govern timing, service, and evidence, and non-compliance can delay or undermine a claim.
Asset freezing – by way of a freezing injunction – is available in appropriate cases where there is a real risk that a debtor will dissipate assets before judgment can be enforced. This is a powerful but procedurally demanding remedy; the evidential threshold is high and the application is typically made without notice to the other side.
Enforcement of judgment once obtained can take several forms: a charging order over property, a third-party debt order against a bank account, or a writ of control allowing seizure of goods. Identifying the debtor's assets in advance – through Companies House searches, credit data, or court-ordered disclosure – materially improves enforcement prospects.
Where a debtor is insolvent or approaching insolvency, creditors may also consider whether bankruptcy and restructuring procedures offer a route to recovery, particularly if the debtor has assets that a liquidator could realise.
If you are currently holding unpaid invoices against a UK counterparty and would like to discuss your options under the existing framework, please contact our team at info@ferrazwhitmore.com or visit our contacts page.
Who Is Affected and When
The Bill's proposed timeline means that any company doing business with UK entities should plan on the following basis:
- Now until enactment (expected no earlier than 2027): Existing statutory and contractual remedies apply. Review outstanding contracts for payment term length, interest provisions, and dispute resolution clauses.
- On enactment: UK-to-UK contracts with terms exceeding 60 days (or 30 days for public-sector buyers) will need to be amended or renegotiated. Suppliers will gain the automatic right to interest at 8% over base rate on overdue amounts without any contractual basis.
- Post-enactment enforcement: The Small Business Commissioner will have investigatory and adjudicatory powers. Persistent late-paying companies could face fines as well as reputational consequences from published findings.
Companies registered at Companies House as UK entities will be directly subject to the regime. Foreign companies operating through UK subsidiaries or branches should assume their UK vehicles fall within scope. The FCA and OFSI regulatory frameworks are not directly engaged by this legislation, but financial services firms and sanctioned-counterparty considerations can intersect with debt recovery strategy in complex cross-border matters.
Immediate Actions for International Companies
Given the legislative direction and the scale of the problem, the following steps are worth considering now:
- Audit your UK receivables. Identify overdue invoices, calculate accrued statutory interest, and assess which accounts require escalation. Early action typically produces better outcomes than waiting for a debtor's position to deteriorate further.
- Review contract payment terms. If existing UK contracts contain payment periods that would exceed the proposed 60-day cap, consider whether to renegotiate proactively rather than reactively once the Bill is in force.
- Verify interest and enforcement clauses. Ensure your standard terms contain valid, enforceable late payment interest provisions and a clear choice of law and jurisdiction clause that supports enforcement in England and Wales.
- Investigate counterparty financial health. For new and existing relationships, use Companies House filings and other available data to monitor signs of financial stress. Early indicators can inform credit terms, advance payment requirements, or the decision to pursue a payment order before the position becomes irrecoverable.
- Seek legal advice before pursuing enforcement. Whether through direct court proceedings, asset freezing, or the insolvency route, each mechanism carries procedural requirements and strategic trade-offs. Engaging a lawyer United Kingdom with experience in cross-border commercial debt before committing to a course of action reduces the risk of procedural error and wasted costs.
Our debt recovery practice in the United Kingdom advises international clients on the full range of collection and enforcement strategies available under English law. If you have a matter you would like to discuss, please write to us at info@ferrazwhitmore.com.
Looking Ahead
The Commercial Payments Bill represents a significant policy shift in how the UK intends to address the late payment culture that has burdened smaller businesses for decades. For international companies, it creates both an opportunity – stronger statutory support for creditors – and an obligation – to ensure compliance where UK entities within a group are the payer. The practical impact will depend on the final text, any exemptions introduced through secondary legislation, and the pace of the Small Business Commissioner's enforcement activity once the new powers are operational.
Monitoring the Bill's progress through Parliament and taking preparatory steps now, rather than waiting for Royal Assent, is the prudent approach. As a law firm United Kingdom with a dedicated cross-border practice, Ferraz & Whitmore will continue to track developments and provide updated guidance as the legislation advances.
For a preliminary discussion of how these developments may affect your UK operations or receivables position, contact our team at info@ferrazwhitmore.com or visit our contacts page to arrange a consultation.
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.