The Commercial Payments Bill: What It Means for Your Small Business (July 2026)
- Kimberley Lock (ACCA)
- 1 day ago
- 11 min read
Published: 8 July 2026 | Author: Kimberley, Lock & Ledger | Category: Small Business, Finance & Law
Late payments are not a minor inconvenience for small businesses. They are one of the leading causes of business failure in the UK.
Thirty-eight businesses close every single day because of unpaid invoices. The average small business is sitting on £22,000 of money it is owed but has not received. And nearly half of all SME invoices are paid late.
The government has finally responded with the most significant piece of late payment legislation in over 25 years.
The Commercial Payments Bill, introduced to Parliament in May 2026, proposes to cap payment terms, mandate interest on overdue invoices, and give real enforcement powers to the body that protects small suppliers.
This blog covers what the Bill says, what it means for your business today, and what you can do about late payments right now, without waiting for the law to change.
The Late Payment Problem in NumbersThese are the latest figures as of Q1 2026:
Sources: MarketInvoice, Credit Connect, QuickBooks UK |
If any of those numbers feel familiar, you are not alone.
Late payment is a structural problem in the UK economy, and owner-managed businesses absorb the majority of the damage.
Why Late Payment Hits Small Businesses Hardest
Large businesses can access credit facilities, overdrafts and invoice finance to bridge the gap when a client pays late. Most small and owner-managed businesses cannot, or choose not to, because of the cost.
The result is that a single large client paying 60 or 90 days late can be enough to force a business owner to delay paying their own suppliers, their PAYE, or in the worst cases, their staff.
The problem cascades through supply chains, which is why the number of overdue invoices across the UK rose by 3% in just one year.
The construction sector is particularly affected. In Q1 2026, there were 1,159 insolvency-related cases in construction alone, more than any other sector. [1]
Retention payments, where contractors withhold a percentage of payment until long after the work is complete, are a significant part of that problem.
What Is the Commercial Payments Bill?
The Commercial Payments Bill was introduced in the House of Lords on 19 May 2026. The government has described it as the largest crackdown on late payments in over 25 years and a bid to give the UK the toughest late payment regime of any G7 economy. [5]
It builds on the Late Payment of Commercial Debts (Interest) Act 1998, which gave businesses the right to charge interest on overdue invoices, but which many businesses were too nervous to use in practice. The new Bill goes further on both the rules and the enforcement.
Here is what the Bill proposes:
The 5 Key Provisions at a Glance1. Maximum 60-day payment terms for business-to-business contracts (30 days for public authorities). Terms beyond this will be automatically void. 2. Mandatory interest at 8% above the Bank of England base rate on all late payments, applied automatically by law. 3. Protection against spurious disputes — suppliers gain a right to fixed compensation where a buyer raises a dispute late or without sufficient evidence. 4. A ban on retention payments in construction contracts. 5. Expanded Small Business Commissioner powers including financial penalties of up to 1% of annual UK turnover for businesses that persistently pay late. |
1. A 60-Day Cap on Payment Terms
The Bill introduces a statutory maximum payment period of 60 days for business-to-business commercial contracts, dropping to 30 days where the buyer is a public authority such as a local council, NHS body, or government department.
Any contractual terms that exceed these limits will be automatically void and replaced with a 30-day implied term. So if a client currently insists on 90-day payment terms in their contracts, those terms will have no legal standing once this Bill becomes law. [6]
Limited exemptions apply for contracts between two large companies and certain international trade arrangements, but for the vast majority of small supplier relationships in the UK, the 60-day cap will apply. [6]
2. Mandatory Interest on Late Payments
Under the proposed legislation, interest on late payments is no longer something you have to claim - it will be applied automatically at 8% above the Bank of England base rate from the day the payment becomes overdue. [5]
This strengthens a right that already exists under the 1998 Act but which most small businesses are reluctant to enforce for fear of upsetting client relationships.
3. Protection Against Spurious Disputes
A common tactic used by larger businesses to delay payment is to raise a dispute against an invoice without proper grounds, or to raise one very late, effectively putting the invoice on hold while the supplier has little recourse.
The Bill gives suppliers the right to a fixed sum in compensation where a buyer raises a dispute without sufficient information or raises it unreasonably late. [6]
4. A Ban on Retention Payments in Construction
For businesses in the construction sector, the Bill takes an additional step by prohibiting the withholding of retention payments under construction contracts altogether. Retentions have long been one of the most significant sources of cash flow pressure in the industry. [5]
5. Expanded Powers for the Small Business Commissioner
The Small Business Commissioner (SBC) currently handles complaints between small suppliers and larger businesses, but enforcement has historically been limited to making recommendations. The Bill changes this significantly.
Under the proposed legislation, the SBC will be able to investigate businesses suspected of persistently poor payment practices, require payment performance data to be published, issue enforcement directions, and impose financial penalties of up to 1% of annual UK turnover.
Businesses paying 25% or more of their invoices late are likely to trigger investigation. [5][6]
Large companies that are persistently late will also be required to have their boards or audit committees publish a public explanation of why their payment performance is poor and what they are doing to address it. [5]
Is This Law Yet?
Not yet. The Bill was introduced to the House of Lords in May 2026 and is currently working through Parliamentary scrutiny. It is expected to pass given the cross-party support it has received, but no implementation date has been confirmed as of 8 July 2026.
This means your existing contracts and payment terms remain in force for now. However, businesses would be wise to start reviewing their arrangements in advance of the law changing rather than scrambling to catch up afterwards.
Unsure how your current payment terms and invoicing hold up? We can review them with you. Book a free consultation with Lock & Ledger
What This Means for Your Business Right Now
Whether you are a supplier waiting to be paid or a business that pays suppliers, this legislation will affect you. The important thing to understand is that you do not have to wait for the Bill to become law to start improving your position.
If You Are a Supplier or Contractor
The Bill is designed to protect you, but those protections only kick in once it is law.
In the meantime, your existing rights under the 1998 Act already entitle you to charge interest on late payments at 8% above the base rate. Most small businesses either do not know this or do not act on it.
Beyond the legal rights, the most effective thing you can do right now is get your processes tight. Many late payment problems stem not from bad-faith clients but from invoices that go out late, contain errors, or do not clearly state the payment due date. Tightening these up reduces the most common grounds for a client to delay.
If You Are a Business That Pays Suppliers
If your standard payment terms currently exceed 60 days, you will need to revise your contracts before the legislation takes effect. The risk of not doing so is not just reputational: once the Bill is law, those terms will be automatically replaced with 30-day terms, and any late payment will attract mandatory interest that your supplier does not even have to invoice for.
This is particularly relevant for businesses that work with many freelancers, sub-contractors or small suppliers who have historically accepted unfavourable terms without challenge.
Action Checklist: What to Do Before the Bill Becomes LawIf you supply goods or services to other businesses:
If you pay other businesses:
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Why Late Payment Is Really a Cash Flow Problem
The Commercial Payments Bill is important. But legislation moves slowly, and the cash flow gap caused by a late-paying client is real today.
The reason late payment causes so much damage is not just the missing money itself. It is the knock-on effect: the supplier you cannot pay on time, the PAYE or VAT bill you have to fund from your overdraft, the hire you defer, the investment you put off. One late payment ripples outward.
This is why the way you manage your cash flow, your invoicing, and your client relationships matters every month, not just when a new law comes into force.
Businesses that have visibility over their cash position, and a proper process for chasing money owed, are far better placed to survive a client who pays late or tries to renegotiate terms.
How Lock & Ledger Can Help
Late payment is fundamentally a cash flow problem, and cash flow is at the heart of what we do.
At Lock & Ledger, we work with owner-managed businesses across the UK to make sure they have full visibility over their finances and are not left exposed by clients who do not pay on time.
We are not a large firm where you speak to a different person every time you call. When you work with us, you work with Kimberley directly. That means joined-up advice across your accounting, your cash flow, and the practical day-to-day challenges of running your business.
Here is where we can make a real difference if late payment is affecting you:
Cash flow forecasting: We build a clear picture of your cash position over the coming weeks and months so you can see gaps before they become a crisis, not after. Find out more about our cash flow services
Contract and invoice reviews: We review your invoicing process and client payment terms to make sure everything is watertight, clearly stated, and compliant with your existing legal obligations and the incoming Bill.
Credit control processes: We help you set up a consistent, professional process for following up on overdue accounts so nothing slips through and client relationships are handled appropriately.
Knowing and using your existing rights: You already have the right to charge interest on late payments under the 1998 Act. Many business owners simply do not know how to use it. We can walk you through the process. We can walk you through it and help you decide when and how to use it.
Ready to get your cash flow under control?If late payments are affecting your business, or you want to make sure you are in the best possible position when the Commercial Payments Bill becomes law, we would love to help. Book a free initial conversation with Kimberley at Lock & Ledger Or follow Lock & Ledger on LinkedIn for weekly finance tips written for owner-managed businesses. |
Sources and References
Frequently Asked Questions
What is the Commercial Payments Bill?
The Commercial Payments Bill is UK legislation introduced to Parliament in May 2026 that caps business-to-business payment terms at 60 days, makes interest on late payments mandatory, and gives the Small Business Commissioner new powers to investigate and fine businesses that persistently pay late. It is the biggest shake-up of late payment law in over 25 years.
When will the Commercial Payments Bill become law?
No firm date has been set. As of July 2026, the Bill is working through Parliamentary scrutiny in the House of Lords. It has cross-party support and is expected to pass, but businesses should monitor progress and use the time now to review their payment terms and contracts rather than waiting.
What are the new payment terms under the Commercial Payments Bill?
The Bill caps payment terms at 60 days for business-to-business contracts and 30 days where the buyer is a public authority. Any contractual term that exceeds these limits will be automatically void and replaced with a 30-day implied term. Limited exemptions exist for contracts between two large companies and certain international trade arrangements.
What counts as a late payment under UK law?
A payment is late if it is received after the date agreed in the contract. Where no date is agreed, the default under the Late Payment of Commercial Debts (Interest) Act 1998 is 30 days from the invoice date or from delivery of the goods or services, whichever is later. The Commercial Payments Bill does not change this definition but strengthens what happens when businesses breach it.
Can I already charge interest on a late payment?
Yes. Under the Late Payment of Commercial Debts (Interest) Act 1998, you can already charge interest at 8% above the Bank of England base rate on any overdue invoice. You do not need permission from the client and you do not need to take them to court. Many small businesses do not know this right exists or feel uncomfortable using it.
How much interest can I charge on a late invoice in the UK?
You can charge statutory interest at 8% above the Bank of England base rate. As of July 2026, with the base rate at 4.25%, that means you can charge 12.25% per year on the overdue amount. You can also claim a fixed compensation sum of £40, £70 or £100 depending on the invoice value, plus reasonable debt recovery costs.
What happens if a client ignores my invoice?
Start by sending a formal written reminder referencing the original invoice and the date payment became due. If that fails, you can charge statutory interest and issue a Letter Before Action. From there, options include a County Court claim for amounts under £10,000 using the small claims track, referring the matter to the Small Business Commissioner, or instructing a solicitor for larger debts. Do not let it drift: the longer you wait, the harder recovery becomes.
How should small businesses prepare for the Commercial Payments Bill?
Review your contracts now and check whether your current payment terms will be compliant with the 60-day cap. Make sure your invoices are issued promptly, include all required information, and have a clear payment due date stated. Set up a consistent process for chasing overdue accounts. Speak to an accountant about your cash flow so you can see pressure points before they become a crisis.
Get in touch with Lock & Ledger today. We work with owner-managed businesses across the UK to take the stress out of their finances. No jargon, no being passed between departments, just straightforward, practical advice from someone who understands your business. Contact us at lockandledger.co.uk | Email: Kimberley@lockandledger.co.uk |
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