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The Commercial Payments Bill is the biggest change to UK late payment law in over 25 years. It caps payment terms at 60 days for large firms buying from smaller suppliers, makes interest of 8% above the Bank of England base rate mandatory on every late payment, and gives the Small Business Commissioner the power to fine persistent late payers. It entered Parliament on 19 May 2026 and is expected to take effect in 2027.
The detail matters, because most of what the bill “gives” small businesses already exists in law. What changes is enforcement, and you don’t have to wait for Royal Assent to start.
The Commercial Payments Bill is UK legislation, introduced to the House of Lords on 19 May 2026, that reforms how quickly businesses must pay their suppliers and what happens when they don’t. The government has called it the “largest crackdown on late payments in over 25 years” and says it is targeting the toughest late payment regime in the G7.
You’ll see it referred to by a few names. The formal parliamentary title is the Commercial Payments Bill [HL]. Government announcements and press coverage have also called it the Small Business Protections Bill, and it was trailed in the King’s Speech on 13 May 2026 as part of a package of small business measures. Same bill.
Late payments cost the UK economy an estimated £11 billion a year, and government figures suggest 38 small businesses close every day because of cash flow problems caused by unpaid invoices. In practice that looks like a customer who owes you £14,000 paying in 87 days, because nothing happens when they don’t.
| Measure | Today (Act of 1998) | Under the Commercial Payments Bill |
|---|---|---|
| Maximum payment terms | 60-day default, but longer terms can be agreed in the contract | Hard 60-day cap for large firms paying smaller suppliers; 30 days for public authorities; limited exemptions |
| Late payment interest | A right you can claim (base rate + 8%), often waived or substituted in contracts | Mandatory implied term at base rate + 8%; cannot be contracted out |
| Construction retentions | Routinely withheld, sometimes for years | Withholding retention payments banned |
| Enforcement | Small Business Commissioner can name poor payers but has no real teeth | Commissioner can investigate, adjudicate disputes, and fine persistent offenders |
| Accountability | Payment practice reporting, lightly policed | Audit committees of late-paying large companies must publicly explain performance |
Large firms will generally be barred from imposing payment terms longer than 60 days on smaller suppliers, and public authorities will be held to 30 days. Exemptions exist but are drawn narrowly. If your biggest customer currently pays on “90 days end of month”, that term is on borrowed time.
This is the measure that changes the most in practice. Statutory interest at 8% above the Bank of England base rate becomes an implied term of every commercial contract in scope, as simple interest, and businesses will not be able to contract out of it. Today, statutory interest is a right many suppliers sign away without noticing, because a customer’s standard terms substitute a token “2% above base” clause or exclude it entirely. The bill ends that.
Construction contracts commonly hold back 3% to 5% of the contract value for years after practical completion, and retentions are routinely lost entirely when a main contractor becomes insolvent. The bill bans withholding retention payments outright, a change subcontractors have spent decades asking for.
The Small Business Commissioner has existed since 2017, but participation has been largely voluntary. Under the bill, the Commissioner gains the power to investigate poor payment practices, adjudicate disputes between small suppliers and large customers, and fine the worst offenders. Government briefings suggest fines for persistently late payers could reach tens of millions of pounds.
Audit committees of large companies with poor payment performance will have to explain that performance publicly and set out how they’ll fix it. Late payment moves from an accounts payable tactic to a board-level disclosure issue.
The bill doesn’t invent new rights so much as remove the escape hatches from old ones. Since 1998, the Late Payment of Commercial Debts (Interest) Act has given every UK business supplying another business the right to charge statutory interest at 8% above the Bank of England base rate, plus fixed compensation of £40, £70, or £100 per invoice depending on the debt’s size.
In practice, two things have blunted the Act for nearly three decades:
The bill fixes the first problem by statute. The second problem stays yours: interest that’s mandatory on paper but never applied in practice looks a lot like the last 28 years. The right has existed since 1998. The gap has always been enforcement.
The new late payment rules are expected to take effect in 2027, subject to parliamentary passage. The bill was introduced to the House of Lords on 19 May 2026 and still needs to complete committee stage, report stage, and third reading in both Houses before Royal Assent, with secondary legislation and transition periods likely to follow. Businesses on both sides of the invoice have a window of roughly a year to get their terms and processes in order.
If you supply larger customers, the bill shifts the default in your favour: shorter maximum terms, automatic interest, and a regulator with fining powers behind you. Three practical moves before 2027:
If you’re on the paying side, the compliance clock is running. Standard terms beyond 60 days will need rewriting, accounts payable processes will need to actually hit the dates your contracts promise, and your audit committee inherits a new disclosure obligation. The companies treating this as a 2027 problem will be the ones explaining themselves publicly in 2028.
This bill exists because small businesses, as a group, have spent 28 years not using the rights they already have. The Act of 1998 has offered base rate + 8% the whole time. It went unenforced because enforcing it was manual and awkward.
That’s the part software already solves. Paidnice sits on top of Xero and QuickBooks and enforces your payment terms automatically: late fees and interest, reminders that escalate on your schedule, statements, prompt payment discounts, and payment plans when a customer genuinely can’t pay in one go. Firm on the money, fair to the customer.
Setting up the bill’s interest regime takes one policy:
This is what that policy looks like in Paidnice:
The results across our customers: eight in ten invoices get paid on time, average wait for payment cut in half within 30 days, and up to 90% less time spent following up by hand. When the bill lands, businesses running this way won’t need to change anything. They’ll have been operating at the new standard for a year, with the cash flow to show for it.
Close the gap between invoice and payment before Parliament closes it for you. Set up your interest policy free, book a demo, or see how late fees work in Paidnice.
Yes, for now. The 1998 Act sets a 60-day default but lets businesses agree longer terms in the contract if they are not grossly unfair. Once the Commercial Payments Bill takes effect (expected 2027), large firms will generally be barred from imposing terms beyond 60 days on smaller suppliers.
Statutory interest is 8% per annum above the Bank of England base rate, plus fixed compensation of £40, £70, or £100 per invoice depending on the amount owed. This is your right under the Late Payment of Commercial Debts (Interest) Act 1998 today; the bill will make it a mandatory term that customers can’t contract out of.
Yes. The bill bans withholding retention payments under construction contracts, one of the longest-running cash flow problems for subcontractors.
Yes. The formal parliamentary title is the Commercial Payments Bill [HL]; government announcements and media coverage have also called it the Small Business Protections (Late Payments) Bill. It was announced in the King’s Speech on 13 May 2026 and introduced to the House of Lords on 19 May 2026.
The rules are expected in 2027, once the bill completes its passage through both Houses of Parliament and receives Royal Assent, with transition arrangements likely for existing contracts.
Sources: GOV.UK announcement, 19 May 2026 · Commercial Payments Bill [HL], UK Parliament · Late Payment of Commercial Debts (Interest) Act 1998.
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