The Commercial Payments Bill (Bill) completed its third reading in the House of Lords on 20 October 2026. It was introduced in the House of Commons the following day and is now awaiting its second reading.
The Bill’s provisions remain subject to amendment, but it currently proposes significant changes to commercial payment practices in the UK by limiting businesses’ ability to agree extended payment terms and strengthening enforcement measures against persistent late payers.
Why the changes?
The Bill seeks to address the economic impact of persistent late payment, particularly on small businesses.
Research commissioned by the Small Business Commissioner (SBC) estimates that late payments cost the UK economy approximately £11 billion and contribute to the closure of around 14,000 businesses each year.
The Government has therefore proposed stronger protections and enforcement powers to discourage poor payment practices and reduce the burden on suppliers of pursuing overdue debts.
Key proposed changes
- Maximum payment terms – B2B payment terms would be capped at 60 days, with a shorter 30-day limit for contracts with public authorities, subject to certain exceptions. Longer payment periods may be permitted in specified circumstances, including where both parties are categorised as large companies or where the purchaser falls within a smaller business category than the supplier.
- Acceptance and verification – where a contract provides that the payment period begins only once the goods or services have been accepted or verified, the acceptance or verification process will be treated as completed no later than 30 days after the supplier has performed its relevant contractual obligations. A contract may specify a longer period only if the purchaser can demonstrate that a longer period is fair and reasonable.
- Mandatory statutory interest – overdue payments would be required to include the statutory interest rate of 8% above the Bank of England base rate. Currently, businesses are able to contract out of the statutory interest rate by agreeing an alternative “substantial contractual remedy”. In practice, companies usually agree an interest rate on late payments of between 2% and 5% above base rate. Under the current proposals, businesses would no longer be permitted to do so.
- Earlier notification of disputes – some businesses raise disputes shortly before payment becomes due, which can delay payment. Under the new reforms, purchasers seeking to withhold payment in the event of a dispute would generally need to raise and sufficiently explain the dispute at least seven days before that payment falls due. Where the payment period is 14 days or less, the deadline for this requirement would be at the payment date. Disputes that are raised late or are explained insufficiently could entitle a supplier to compensation equal to the higher of £40 or 1% of the contract price (calculated against the disputed amount where only part is disputed).
- Reporting requirements – companies that qualify as large companies and LLPs under the current Reporting on Payment Practices and Performance Regulations 2017 will be required to also report on details of late payments. Those whose payment data is persistently late will be required to publish a formal public statement detailing the measures they plan to introduce to improve their payment practices.
Powers of the Small Business Commissioner
The SBC would gain powers to investigate persistent poor payment practices, require companies to provide information to them, issue enforcement directions and impose financial penalties.
A new adjudication scheme will also allow small businesses to refer payment disputes with larger businesses to the SBC. Decisions of the SBC would bind the parties pending a final resolution through court proceedings or arbitration.
When would the reforms take effect?
The Government currently expects for most measures to commence in late 2027 or early 2028, subject to parliamentary approval.
The principal payment-term and interest changes are expected to generally apply to contracts entered into after the relevant provisions commence, rather than existing contracts.
Culbert Ellis comment
The Bill represents a departure from the freedom of contract traditionally afforded to businesses in the UK, limiting their ability to negotiate payment terms and remedies for late payment.
Businesses should monitor the Bill’s progress and identify provisions in their standard terms which may need updating ahead of its implementation.
How To Get In Contact
To find out more or if you require assistance with these matters, speak with our Contract Team on +44 (0)204 600 9907 or email info@culbertellis.com.
Accurate at the time of writing. This information is provided for general information purposes only and should not be relied upon as legal advice.
