The Commercial Payments Bill
By Kimberlee Carstensen on 16 June 2026
Key proposed changes to commercial payment regulation
On 19 May 2026, the UK government introduced the Commercial Payments Bill (the Bill), a proposed reform of the late payment regime aimed at tackling persistent delay in business-to-business payments. Informally referred to as the Small Business Protections Bill, the Bill looks to strengthen protections for small business suppliers dealing with larger customer businesses. If enacted, it would assist SMEs* by imposing tighter controls on payment terms, strengthening enforcement and reducing the scope for parties, particularly larger customers dealing with SMEs, to agree terms more favourable to the customer.
*To qualify as an SME, a business must have less than 250 staff and less than or equal to £44 million annual turnover or a balance sheet total of less than or equal to £38 million.
Key reforms
1. Maximum payment terms: 60 days
A statutory cap of 60 days will be introduced and apply to most commercial contracts (with a shorter 30-day limit for public authorities); the current regime only applies a maximum payment cap on public authorities. Any contractual term which exceeds the statutory cap will be ineffective and automatically replaced by a 30-day implied term. Whilst this reduces the flexibility parties currently have to agree extended payment periods, it will provide significant protection to SMEs when dealing with larger customers, where the balance of power is often weighed against the SME.
The Bill contains various exemptions to the 60-day payment term, including where:
· both the purchaser and the supplier are large undertakings;
· the purchaser is the smaller party; or
· the contact is one specified in regulations made by the Secretary of State (i.e. in relation to contracts in a particular industry or sector).
2. Mandatory Statutory interest: no contracting out
The Bill proposes to make statutory interest on late payment mandatory, at a rate of 8% above the Bank of England base rate and parties will no longer be able to agree lower rates or exclude interest entirely. This is a stark departure from the current regime under which parties can agree alternative remedies for late payment as long as the contract includes an alternative substantial contractual remedy for the late payment of the debt.
3. Invoice disputes: be quick and clear
The Bill will introduce a time limit for purchasers wishing to raise an invoice dispute. If the purchaser fails to meet the time limit or provide sufficient information, it will be subject to automatic financial consequence being a fixed fee of the higher of £40 or 1% of the contract price (or 1% of the disputed amount where only part of the invoice is disputed). These measures are designed to address common strategies used by larger customers to defer payment to smaller suppliers.
This means that large businesses will need to ensure that they review invoices on receipt and, if required, ensure they raise any disputes promptly and clearly.
4. Construction contracts: a ban on retention clauses
The Bill includes sector-specific reforms, most notably an outright prohibition on retention clauses in construction contracts, subject to transitional arrangements. This would represent a significant shift in construction industry practice where the deduction and withholding of retention payments will no longer be permitted.
5. The Small Business Commissioner - enhanced enforcement
The enforcement powers of the Small Business Commissioner (SBC) will be materially increased. The SBC will have the power to investigate businesses suspected of persistent poor payment practices and adjudicate payment disputes between businesses. If a breach is found, the SBC will have the power to issue directions and/or impose financial penalties which can include fines of up to 1% annual turnover in the UK.
6. Large Businesses: increased reporting and accountability
Large businesses will face greater scrutiny, including an amendment to The Reporting on Payment Practices and Performance Regulations, which will require qualifying large businesses* to report on payment practices and, in some cases, publish explanations for poor payment performance and steps being taken to address it. This reflects a broader policy objective of increased transparency and accountability.
*A qualifying large business is described as a business or LLP that has at least two of the following: (1) £54+ million in turnover; (2) £27+ million on its balance sheet; or (3) 250 or more employees.
What next and action points
If enacted in its current form the Bill will have a material impact on businesses’ current and future contractual agreements and a practical effect on their payment processes, particularly for larger organisations. It will give SMEs a minimum safeguard as to the payment terms they can expect when dealing with large customers, though in practice SMEs are likely to push for even shorter payment terms, such as 30-day payment terms.
Contract terms and conditions will need to be adapted to align with the new laws once enacted, and businesses will need to reassess both contractual terms and operational practices to ensure compliance, maintain positive commercial relationships, and reduce the likelihood of disagreement or regulatory action. Larger businesses should anticipate increased scrutiny and ensure reporting processes are robust.
We are keeping an eye on the progress of the Bill to review upcoming changes to identify what changes will affect our clients and the businesses we work with and make the necessary updates and changes.
If you would like to know more about the Bill and or how the new laws might apply to your contracts, please get in touch at kimberlee.carstensen@roxburghmilkins.com or +44 (0) 117 928 1910.
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