The UK Commercial Payments Bill, introduced in the House of Lords on 19 May 2026, proposes the most significant overhaul of UK late payment law in a generation: a statutory 60-day cap on payment terms, mandatory non-excludable interest, a ban on construction retentions, and substantially strengthened enforcement powers for the Small Business Commissioner. The Bill is not yet law and is not expected to come into force before 2027, but its structure and policy direction are sufficiently clear to warrant immediate strategic review by any business operating in UK supply chains or holding UK receivables.
Background: Why the Bill Was Introduced
Late payment has long been identified as a structural drag on the UK economy. Research published by the Department for Business and Trade and the Office of the Small Business Commissioner (OSBC) estimates that late and extended payment terms cost the UK economy nearly GBP 11 billion a year – a figure that reflects not only cash-flow damage to individual businesses but systemic losses in productivity, insolvency cascades and reduced investment capacity across supply chains. You can read further context on the scale of that cost in our alert on UK late payment costs.
Previous legislative attempts – principally the Late Payment of Commercial Debts (Interest) Act 1998 and successive amendments – created statutory rights to interest and compensation but left enforcement largely to individual creditors. The practical result was under-utilisation: smaller suppliers were reluctant to pursue late payment interest against clients on whom they depended commercially, and the existing Small Business Commissioner lacked adjudicatory or punitive powers. The Bill is designed to close both gaps.
The Bill's Core Provisions
60-Day Payment Cap
The headline measure is a statutory maximum of 60 days for business-to-business payment terms. For contracts with public authorities the cap is tighter: 30 days. Any contractual term purporting to extend payment beyond these limits would be void, with the statutory cap applying instead. The Bill does provide a regulation-making power to create limited exemptions, but the scope of those exemptions is not yet settled and will be subject to secondary legislation. Businesses that currently rely on contractual terms of 90, 120 or even longer days – common in construction, retail and certain manufacturing sectors – should treat this as a direct threat to their standard form contracts.
Mandatory Non-Excludable Interest
Interest on overdue amounts would accrue at 8 percentage points above the Bank of England base rate. Critically, the Bill designates this right as non-excludable: parties cannot contract out of it. This removes the most common mechanism by which dominant buyers have historically neutralised the 1998 Act's interest provisions – namely, by including a contractual interest clause at a negligible rate that displaces the statutory rate. Under the Bill, that device would cease to function.
Ban on Construction Retentions
The Bill introduces a prohibition on construction retentions – the practice by which main contractors and clients withhold a percentage of a subcontractor's payment as security against defects, sometimes for years. This provision has been debated in Parliament for over a decade and its inclusion signals a political commitment to addressing the particular vulnerability of subcontractors in construction supply chains. Implementation details, including any transition period, remain subject to the Bill's passage and any secondary legislation.
Enhanced Powers for the Small Business Commissioner
Perhaps the most consequential structural change is the expansion of the OSBC's role. Under the Bill, the Commissioner would acquire powers to:
- investigate persistent late payers on a proactive basis, without waiting for a formal complaint;
- adjudicate individual payment disputes and issue binding determinations;
- fine businesses found to be persistent late payers.
The combination of investigatory initiative and punitive sanction marks a fundamental shift from the current model. Businesses that have managed late payment risk as a purely private matter – settled, if at all, through negotiation or civil litigation – will need to account for the possibility of regulatory proceedings, public findings and financial penalties. This sits alongside existing obligations under the Payment Practices and Performance Reporting regime, which already requires larger companies to report their payment practices to Companies House. A poor published record under that regime could itself trigger Commissioner scrutiny under the new framework.
Scope and Territorial Application
The Bill applies to UK-to-UK business transactions. It does not, on its current drafting, extend to cross-border contracts where one party is established outside the United Kingdom. This is a significant boundary for international clients to understand clearly: a contract between a Portuguese supplier and a UK buyer, for example, would not automatically fall within the Bill's payment cap regime. However, the applicable law and jurisdiction clauses of that contract will determine which rules govern payment terms, and English law contracts governed by English courts may interact with the Bill in ways that require careful drafting review.
For foreign companies that operate through UK subsidiaries, or that supply to UK entities through UK-registered affiliates, the domestic scope of the Bill will be directly relevant. Those structures should be reviewed now, before the Bill becomes law.
If your business has cross-border receivables or supply arrangements involving UK counterparties, our team can help map the applicable legal framework and identify exposure. Write to us at info@ferrazwhitmore.com or visit our contacts page.
Interaction with Existing Legal Mechanisms
The Bill does not replace the existing civil enforcement toolkit. Creditors will continue to have access to the full range of remedies under the Civil Procedure Rules (CPR), including summary judgment applications, payment orders and, where asset dissipation is a concern, asset freezing injunctions under the Mareva jurisdiction. High Court enforcement remains available for larger debts, with the advantages of High Court Enforcement Officers and broader enforcement powers against debtors' assets.
What the Bill changes is the upstream layer: if payment terms are capped and interest is non-excludable, the gap between invoice date and the point at which a debt becomes legally actionable is compressed, and the quantum of interest accruing from that point is higher than under many current contractual arrangements. Businesses that have relied on extended terms as a form of working capital finance will find that strategy significantly more expensive – and potentially subject to regulatory action rather than merely civil risk.
Our debt recovery practice in the United Kingdom works with creditors across the full enforcement spectrum, from pre-action correspondence and statutory demands through to High Court proceedings and cross-border judgment enforcement.
Open Questions and Interpretive Risk
Several aspects of the Bill remain genuinely uncertain at this stage of its parliamentary progress.
- Exemptions by regulation: the scope and criteria for the regulation-making power to exempt categories of transaction from the 60-day cap is not yet defined. Sectors with structurally longer payment cycles – commodities trading, project finance, certain professional services retainers – will be watching this closely.
- Definition of "persistent late payer": the threshold that triggers the Commissioner's investigatory and punitive powers has not been specified in the Bill as introduced. Secondary legislation or guidance will be required to give this concept legal certainty.
- Interaction with insolvency: where a debtor is insolvent or enters administration, the Bill's non-excludable interest rights will rank as unsecured claims. The interaction with insolvency set-off rules and the priority of payment claims under UK insolvency law will require careful analysis as the Bill develops. Our insolvency and restructuring practice in the United Kingdom monitors these developments as part of broader creditor advisory work.
- FCA-regulated transactions: it is not yet clear how the Bill interacts with payment terms in contracts subject to FCA regulation, including certain financial services arrangements. The FCA's existing rules on prompt payment in specific contexts may create a layered compliance picture.
- OFSI-designated counterparties: businesses subject to OFSI financial sanctions restrictions present a separate layer of complexity where payment delays may not be commercially motivated but legally mandated. The Bill does not appear to address this intersection, and it will require case-by-case analysis.
Strategic Recommendations for Businesses
Given that the Bill is not expected to come into force before 2027, there is a meaningful window to prepare. The following steps are appropriate for most businesses with material UK payment exposure.
- Audit current standard terms: identify all contracts containing payment terms longer than 60 days (or 30 days in public sector supply). Assess whether those terms reflect genuine commercial necessity or are a product of historical bargaining imbalance.
- Review interest provisions: any contractual clause that purports to displace statutory late payment interest should be flagged for revision. Once the Bill is in force, such clauses will be void in any event, but transitional contract management is cleaner with advance planning.
- Assess construction contracts: businesses operating in UK construction supply chains should model the cash-flow and bonding implications of the retention ban. Long-standing commercial assumptions about defects liability cover will need revisiting.
- Prepare for regulatory engagement: the OSBC's new investigatory posture means that payment practice data – already public under the reporting regime – may become the starting point for regulatory enquiry. Businesses should ensure their internal payment processes and data are defensible, not merely contractually compliant.
- Review cross-border contract drafting: foreign parties contracting with UK entities under English law should take specific advice on whether and how the Bill's provisions may be incorporated by reference, implied by statute or otherwise applicable to their arrangements.
Outlook
The Bill's introduction in the House of Lords on 19 May 2026, followed by its second reading on 9 June 2026, signals active parliamentary momentum. It is still subject to amendment at committee stage, report stage and Commons passage, and the regulation-making powers mean that much of the operative detail will emerge in secondary legislation after Royal Assent. The earliest realistic date for the substantive provisions to take effect remains sometime in 2027.
That timeline should not encourage complacency. Supply chain contracts, standard terms and internal payment processes take time to revise at scale. Businesses that begin their review now will be better placed to negotiate transitional arrangements with counterparties, update template documentation and ensure regulatory compliance from the date the law comes into force.
Ferraz & Whitmore's team in the United Kingdom advises international businesses, funds and investors on commercial contract risk, late payment enforcement and regulatory compliance. If you would like to discuss how the Commercial Payments Bill affects your specific arrangements, please contact us 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.