Late payments cost the UK economy £11 billion a year and force 38 UK businesses to close every day. On 19 May 2026, the government introduced the Commercial Payments Bill to Parliament - central to its plan for small and medium-sized businesses, and the most significant action on late payments in over 25 years. Shaped by businesses of every size, sector, region and nation across the UK, it will, if enacted, fundamentally reshape how commercial payment terms are drafted, negotiated and enforced. (Source: UK Government)
The new powers won't come in straight away: there will be an appropriate lead-in time, including a transition period, giving businesses time to prepare. The measures also won't apply retrospectively - payments, contracts and disputes will be judged by the rules in place at the relevant time.
For legal and commercial teams, this isn't just a future compliance task. It's a present-day signal to look at two things: the playbook you draft new contracts from, and the back-book of contracts you've already signed.
What the Bill changes
Three reforms stand out for commercial contracts teams:
A hard 60-day cap on payment terms.
By legally restricting payment periods, the UK government aims to prevent big businesses from using SMEs as "interest-free credit" and to improve cash flow through supply chains. Once in force, any payment term longer than 60 days (or 30 days where a public authority is paying) will be void. Contracts that fall silent on payment terms will have a 30-day term implied. Limited exemptions apply - broadly where both parties are "large undertakings" or where the purchaser is the smaller party - but the definitions sit in secondary legislation that hasn't been finalised yet.
Mandatory statutory interest on late payments.
The UK government wants to fundamentally change business payment behaviour and end the "culture of late payment". Previously, small businesses technically had the right to charge interest, but many feared damaging relationships and avoided enforcing it.
Late payment will trigger interest at 8% above the Bank of England base rate, and parties will no longer be able to negotiate this away. Today, businesses can agree on alternative late-payment remedies provided there's a "substantial remedy" in place. That flexibility is going. Any clause that varies the rate, delays when interest accrues or attaches conditions to it will simply be void.
A minimum 8-day deadline to dispute invoices.
The UK government introduced this deadline (which is typically set as a 30-day statutory limit from receipt, requiring disputes to be raised at least 8 days before the payment is due) to prevent larger companies from using last-minute disputes as an intentional tactic to delay paying suppliers and manage their own cash flow.
Buyers will need to raise invoice disputes with enough detail for the supplier to understand the basis at least eight days before payment is due. Miss that window and a fixed financial liability will kick in: the higher of £40 or 1% of the contract price (or 1% of the disputed amount where only part of an invoice is contested). A narrow "interests of justice" carve-out applies, but it isn't a route around the deadline.
Behind these reforms sits an expanded Small Business Commissioner, with new powers to adjudicate disputes, investigate payment practices, and levy financial penalties of up to 1% of UK annual turnover for non-compliance.
Who is most affected?
While the reforms will affect businesses across the economy, they are likely to have the greatest impact on those that rely on extended payment arrangements, manage large supplier populations, process significant procurement activity, or use lengthy acceptance, testing or verification procedures before payment becomes due. Businesses operating in sectors such as construction, infrastructure and technology may be particularly affected, given their reliance on milestone-based payments and complex approval processes.
Get Your Playbook Ready for the New Payment Terms
Playbooks are not static documents. They're a living record of how your organisation responds to the regulatory and commercial environment around it — and right now, that environment is shifting.
Standard payment-term clauses drafted six months ago could, within the year, produce contracts containing void provisions. Late-payment interest positions your team has fought hard to negotiate down will no longer be available. Invoice dispute mechanics that were once a matter of internal process will become a hard, statutory deadline with financial consequences attached.
This is exactly the moment a well-maintained playbook earns its keep. Updating it in line with these anticipated changes means:
- New contracts written from the date of commencement are compliant by default, not by exception
- Negotiators have clear, defensible fallback positions for the narrow areas where flexibility remains (such as the exemptions for large-to-large deals)
- The dispute-handling process is aligned with the eight-day statutory window, not the older internal SLA
The reforms also reward precision. The Bill ties the payment-term clock to one of four trigger events, and treats acceptance-or-verification procedures (think software acquisitions) as completed within 30 days unless a longer period is "fair and reasonable". Playbook drafting guidance will need to handle these nuances — not just the headline 60-day number.
Looking beyond payment terms
The Bill is about much more than payment terms. Businesses should take the opportunity to review the clauses and processes that sit around invoicing, payment and dispute management. This includes payment terms, late payment interest provisions, invoice approval processes, acceptance and testing mechanisms, dispute procedures, set-off rights and any bespoke remedies for non-payment. Businesses should also look at any provisions that extend payment timelines through lengthy approval, verification or sign-off requirements. Beyond the contract itself, this is a good time to assess whether internal finance, procurement and operational teams are set up to meet the proposed requirements. Compliance is not just about what the contract says - it's about whether the business can consistently deliver on those obligations in practice.
Why is this also a retrospective review opportunity
The harder question is the one most teams put off: what about the contracts we've already signed?
Because non-compliant clauses become void on commencement — rather than being phased out or grandfathered — the back-book matters. Every existing contract with a payment term over 60 days, every negotiated-down interest rate, every bespoke dispute mechanism becomes a potential exposure point the moment the Act commences.
Identifying that exposure is, traditionally, the bit that doesn't happen. The work is slow, the contracts are scattered, and the questions don't fit neatly into how legal teams have historically searched their own files.
When your contracts live in one place, on a platform built to be queried, that calculus changes. A single question — "which of our supplier contracts have payment terms over 60 days?" — should produce an answer in minutes, not weeks. From there, the rest follows: which counterparties to approach, which clauses to vary, which renewals to prioritise.
This is the kind of work that often only gets done when a new regulation forces the issue. The Commercial Payments Bill is one of those moments. It's a good prompt to do the retrospective review that's been sitting on the to-do list — and to set up the systems that make the next one routine rather than reactive.
What to do now to get ahead
Four practical steps while the Bill moves through Parliament:
- Review and update your contract playbook to reflect the new payment-term cap, the mandatory interest position, and the eight-day dispute window. Build in fallback positions for the exemptions where flexibility remains.
- Run a retrospective review of live commercial contracts to identify clauses that will be void on commencement and prioritise the ones approaching renewal or with the highest exposure.
- Watch the secondary legislation. Key definitions, including what counts as a "large undertaking", will be set there, and the answers will shape how the exemptions apply to your contracts.
- Connect with your vendors. A contract is a two-way street, and a strong partnership with the counterparty can make transitions like this easier. Identify your top vendors by revenue, expenditure, or impact on your business. Ask about how they will transition operations to the Bill’s new reality and how it affects you. Make a plan together. This can ease the impact to your business and lessen the administrative burden that results from a significant legislative change.
The reforms aren't law yet. But the contracts you sign today will still be in force when they are. A small bit of planning today will pay dividends in the future and demonstrate the critical value of legal data applied to business operations.
The information in this post is provided for general information purposes only and does not constitute legal advice.
