Commercial Payments Bill 2026: Key Changes to Late Payment Laws Explained

In May 2026, following its public consultation last year, the Government presented its Commercial Payments Bill to Parliament.

The Bill is designed to tackle the issue of late payments or, in its own words, to “end the scourge of late payments which costs the UK economy £11 billion per year and closes down 38 UK businesses every day.”

For businesses, particularly SMEs, the proposed reforms represent a major shift in how commercial debt is regularly, enforced and recovered.

Table of Contents

• What is the Commercial Payments Bill?
• Key Changes
• Will Changes Improve Late Payments for Businesses?
• When Will the Bill Come into Force?
• Final Thoughts
• How Napthens Can Support
• FAQs

What is the Commercial Payments Bill?

The Commercial Payments Bill is a piece of proposed legislation aimed at improving payment practices across UK supply chains and strengthening the rights of suppliers.

While the Bill contemplates a number of legislative changes, including a ban on retentions in construction contracts, the Bill proposes various amendments to the Late Payment of Commercial Debt (Interest) Act 1998, particularly targeted at improving the position of small and medium-sized businesses recovering their debts.

Broadly-speaking, the 1998 Act created a statutory right for businesses to:

• Charge statutory interest on overdue payments in commercial transactions (at a rate of 8% above the Bank of England base rate)
• Claim fixed compensation (of between £40-100 depending on the size of each outstanding invoice) and reasonable recovery charges, that is unless the contract alternative contractual terms provide a substantial remedy.

In combination with other measures, the Bill aims to bolster those rights even further by removing loopholes and introducing stronger enforcement mechanisms to ensure the aforementioned rights are meaningful in practice.

Key Changes Under the Commercial Payments Bill

Alongside a raft of other changes, including increased governance of large companies and reporting on the payment of interest under the 1998 Act, key changes include:

1.      Statutory limits on payment terms

One of the most significant reforms is the introduction of stricter maximum payment terms:

• 30 days when contracting with public authorities
• 60 days when contracting with other purchasers

Any contractual term exceeding these limits will be deemed to be void and replaced with a 30-day default term. The consultation considered that this limit might, in time, be reduced to 45 days, but this will be the subject of further consultation.

According to the House of Lord’s Second Reading of the Bill, there are limited exemptions considered, including:

• Contracts between large businesses
• Circumstances where the purchaser is smaller than the supplier
• Contracts related to import and export transactions (subject to consultation)

This change is intended to prevent larger organisations from imposing extended payment terms (e.g. 90+ days) on smaller suppliers, which can create significant cash flow pressure.

2.      Mandatory Statutory Interest on late payments

Under the current regime, parties can effectively contract out of statutory interest by agreeing alternative payment terms and paying interest by other means.

The Bill proposes removing that flexibility by making statutory interest:

• A mandatory right
• Fixed at a rate of 8% above the Bank of England base rate
• Non-negotiable in commercial contracts

Small businesses considered in the consultation this step might shift the burden from small businesses requesting interest, with the risk of possibly damaging the underlying trading relationship. However, the fact remains that it is one thing to have that right, it is another to seek to enforce it. 

3.      Penalising late disputes

The Bill also targets a common delay tactic: raising disputes late in the payment cycle.

Under the Bill’s proposed framework:

• Suppliers may recover a fixed sum in the event a purchaser raises a dispute “late”
• The amount will be either £40 or 1% of the amount claimed as outstanding, whichever is the higher.

We would query, however, at that level what real incentive there will be to serial non-payers to not raising a dispute “in time”, or discouraging the raising of a dispute on frivolous grounds.  

4.      Increased enforcement powers for the Small Business Commissioner

The Office of the Small Business Commissioner (OSBC) was established as an independent public body in 2016 to “tackle overdue payments and unfavourable payment practices in the private sector”. In addition to providing advice and support in relation to overdue payments and payment practices in the private sector, the OSBC has a statutory duty to review enquiries and investigate formal complaints made to it by small business regarding late and overdue payments.

The Bill intends to expand significantly the powers of the SBC to enforce the 1998 Act, to include:

• a new adjudication scheme specifically for payment disputes arising under the Act;
• the power to investigate persistent poor payment practices by large businesses and make recommendations or issue directions to do or stop doing something (such as amending its standard terms and conditions); and, perhaps of more influence,
• the ability to impose financial penalties on large businesses that persistently engage in poor payment practices or fail to comply with enforcement directions, with fines of up to 1% of the company’s annual UK turnover.

Will the Reforms Solve the Late Payment Problem?

We certainly hope so. Whether the changes do, in fact, address the status quo which the Government describes as “wasteful, unproductive, dives small businesses to the wall, and holds back the potential of small businesses as an engine of economic growth” while admirable, remains to be seen.

If the OSBC is to continue and excel as a force for good, it will require more than just political rhetoric, but tangible and sustained funding. And therein lies the predicament which the OSBC will likely face, along with it all other publicly-funded bodies, including the HM Courts & Tribunals Service.

When will the Commercial Payments Bill come into force?

The Bill was introduced to Parliament on 19 May 2026 and is currently progressing through the legislative process.

Depending on the progress of the Bill through Parliament, it is not expected to come into force until 2027 at the earliest. That said, businesses would be well-advised to start looking at their standard terms and dispute processes in the meantime.

Final thoughts

 Whether the Commercial Payments Bill will achieve its intended aim remains to be seen. While the proposed reforms are clearly targeted at addressing a system which the Government has described as wasteful, unproductive and harmful to small business growth, the effectiveness of those changes will ultimately depend on how they are implemented in practice.

In particular, while expanding the powers of the Small Business Commissioner is a positive step, the success of those reforms will require more than legislative change alone. Without sufficient and sustained funding, there is a real risk that enforcement will fall short of expectation—an issue which is not unfamiliar across publicly funded bodies, including HM Courts & Tribunals Service.

How Napthens can support

At Napthens, we advise businesses on both the drafting and enforcement of commercial agreements, supporting clients to:

• Review and update contractual payment terms through our commercial contracts expertise
• Enforce payment obligations and statutory rights where invoices remain unpaid
• Resolve disputes arising from late or challenged payments through our commercial litigation team
• Put in place practical processes to reduce exposure to late payment risk going forward

Explore our commercial contracts and commercial litigation services and get in touch today to speak with an expert.

FAQs