The UK Commercial Payments Bill, introduced in the House of Lords on 19 May 2026, proposes to give the Small Business Commissioner new powers to investigate, adjudicate and fine businesses that persistently pay late. The Bill is not yet law and is not expected to come into force before 2027, but its passage signals a significant shift in how late payment disputes and debt collection obligations may be enforced in the United Kingdom. International companies trading with UK counterparties or operating UK subsidiaries should begin reviewing their payment practices now.
What the Bill Proposes and Where It Stands
The UK Commercial Payments Bill – also referred to in parliamentary proceedings 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. It remains at an early legislative stage and has not yet received Royal Assent. No firm commencement date has been announced; entry into force is expected no earlier than 2027, subject to further parliamentary scrutiny and any transitional provisions set by secondary legislation.
The Bill addresses a long-standing commercial problem. Research by the Department for Business and Trade and the Office of the Small Business Commissioner estimates that late payment costs the UK economy nearly GBP 11 billion a year, damaging cash flow and, in some cases, pushing otherwise viable businesses towards insolvency or restructuring.
Key Provisions: What Would Change
If enacted in its current form, the Bill would introduce several interconnected measures affecting payment terms, interest on unpaid invoices, and regulatory enforcement:
- Maximum payment terms of 60 days for business-to-business contracts, reduced to 30 days where the buyer is a public authority. Limited exemptions may be permitted by regulations, but the details remain subject to the parliamentary process.
- Mandatory, non-excludable late payment interest at 8% over the Bank of England base rate. Crucially, this interest entitlement could not be waived or excluded by contract, removing a common practice in which stronger counterparties negotiate away the creditor's statutory interest rights.
- A ban on construction retentions, addressing a sector-specific practice whereby buyers withhold a portion of contract value, often for extended periods, as security against defects.
- Expanded powers for the Small Business Commissioner to open investigations, adjudicate complaints and – most significantly – impose fines on persistent late payers. The current Commissioner has persuasive and reporting functions but no direct enforcement or sanctioning powers; this reform would move the office closer to a regulatory model.
For businesses with unresolved disputes over an unpaid invoice or seeking to enforce a payment order against a UK counterparty, understanding how these new powers interact with existing CPR debt recovery procedures and High Court enforcement mechanisms will be essential once the legislation matures.
If your business is currently managing overdue receivables or anticipating a dispute with a UK counterparty, our team can advise on existing routes to debt recovery in the United Kingdom. Write to us at info@ferrazwhitmore.com or visit our contacts page to arrange a consultation.
Who Is Affected
The Bill's payment term and interest provisions apply to UK-to-UK business transactions. Cross-border contracts between a foreign entity and a UK company are not directly within its scope as currently drafted. However, international companies should not assume they are unaffected:
- UK subsidiaries or branches of foreign groups will be subject to the rules in their domestic trading relationships. Parent companies setting group payment policies will need to ensure those policies comply at the UK entity level.
- Foreign companies contracting directly with UK public authorities on procurement matters may encounter the 30-day public authority limit depending on how those contracts are structured and governed.
- Investors conducting due diligence on UK targets through Companies House filings or FCA-regulated entities will want to assess exposure to late payment claims or potential Commissioner investigations as part of any pre-acquisition review.
- Companies in the construction sector operating in the United Kingdom should treat the proposed retention ban as a distinct compliance item requiring contract-level attention.
For businesses already under financial pressure, the interaction between the Commissioner's new fining powers and existing insolvency frameworks is worth monitoring. The prospect of regulatory fines layered on top of late payment interest obligations and potential asset freezing applications could materially affect a distressed company's restructuring options. Our colleagues advising on bankruptcy and restructuring in the United Kingdom can assist in mapping that exposure.
Timeline and Legislative Uncertainty
The Bill is at an early stage and may be amended, delayed or withdrawn as it proceeds through Parliament. The following markers are confirmed from available information:
- 19 May 2026 – Bill introduced in the House of Lords.
- 9 June 2026 – Second reading in the House of Lords.
- No earlier than 2027 – Earliest expected entry into force; specific commencement dates and transitional periods remain pending.
Secondary legislation will likely determine the scope of exemptions to the 60-day cap and the detailed procedural rules governing Commissioner investigations and fines. Businesses should monitor both the primary Bill and any accompanying statutory instruments as they emerge.
The broader context matters: the Bill follows earlier legislative developments on the 60-day payment cap and forms part of a sustained policy effort to address structural late payment in UK supply chains. Companies that have previously relied on contractual terms to reduce or eliminate late payment interest exposure should treat those arrangements as potentially non-compliant once the legislation is in force.
Immediate Action Items for International Companies
Although the Bill is not yet law, the lead time to compliance should not be underestimated. We suggest the following preparatory steps:
- Audit existing UK contracts for payment terms that exceed 60 days and identify any clauses that exclude or reduce entitlement to late payment interest. Flag these for renegotiation or amendment before the law comes into force.
- Review group payment policies applied to UK subsidiaries. Where a parent entity sets centralised payment approval timelines, assess whether those timelines risk pushing a UK entity into breach of the proposed caps.
- Assess construction sector exposure. If your group holds or issues UK construction contracts with retention provisions, begin mapping the commercial and contractual adjustments that a retention ban would require.
- Monitor Companies House and regulatory disclosures for counterparties with existing late payment complaints. Under the current regime, the Commissioner publishes reports on investigated businesses; the proposed fining powers would add a further dimension to that public record, relevant to FCA-regulated entities and OFSI compliance assessments alike.
- Engage legal counsel now, not at commencement. Amending supply chain contracts, updating standard terms and briefing finance teams takes time; beginning that process before the final text is settled allows for a more measured response than a post-commencement scramble.
Ferraz & Whitmore regularly advises international clients on UK commercial law developments and their cross-border implications. To discuss how the proposed changes may affect your contracts or enforcement strategy, contact us at info@ferrazwhitmore.com or through our contacts page.
Looking Ahead
The proposed expansion of the Small Business Commissioner's remit represents a move towards a more interventionist regulatory model for commercial payment disputes in the United Kingdom. If the fining powers are enacted, persistent late payment – currently a commercial and reputational risk – will also carry direct regulatory consequences. For international companies with UK operations, supply chains or investment interests, the time to assess exposure is before those powers are in place.
We will continue to monitor the Bill's progress through Parliament and publish further analysis as the legislative text develops. If you would like to be notified when we publish updates on this or related UK regulatory matters, please reach out at info@ferrazwhitmore.com.
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.