Late payments close 38 UK businesses every single day, and the government puts the cost to the economy at £11 billion a year (GOV.UK, 2026). Most owner-managers have learned to live with it, chasing the same slow customers month after month. A new law called the Commercial Payments Bill is about to give small suppliers the right to be paid on time, and real tools to act when they are not.
TL;DR: The Commercial Payments Bill, introduced to Parliament in May 2026, caps large-firm payment terms at 60 days, makes statutory interest of 8% above the Bank of England base rate mandatory on late invoices, and gives the Small Business Commissioner power to fine persistent late payers up to 1% of UK turnover. The rules will not take effect before 2027, so use the lead-in time to tighten your own credit control.
The Commercial Payments Bill in Brief
This is the biggest reform of UK business payment practice in over 25 years. It follows a government consultation response published on 24 March 2026 and was introduced to Parliament in May 2026, placing a legal duty on larger firms to pay smaller suppliers on time (GOV.UK, 2026).
The Bill exists because the problem is structural, not occasional. The Chartered Institute of Credit Management found that 82% of UK SMEs have faced cash flow difficulties (CICM, 2025), and most of that pressure traces back to invoices sitting unpaid. The main measures are:
- A 60-day cap on payment terms when large firms buy from smaller suppliers
- Mandatory interest on late payments, with no opt-out
- New investigation and fining powers for the Small Business Commissioner
- A ban on withholding retention payments in construction
- New reporting duties for large companies on how promptly they pay
How Long Can a Customer Take to Pay You?
Once the rules are in force, no more than 60 days where a large firm is paying a smaller supplier. There are strictly limited exemptions, and contracts between two large businesses sit outside the cap entirely (GOV.UK, 2026).
Today there is no hard ceiling. A supplier can agree 30-day terms and still be told the customer "pays on 90". That gap is why Q1 2026 saw 17.48 million overdue invoices on UK books, up 3% on the same quarter a year earlier (Credit Connect, 2026), with much of that cash tied up in firms that simply pay when it suits them.
The 60-day cap does not stop you offering shorter terms. It sets the outer limit a big customer can impose on you, so a contract that quietly stretches payment to 90 or 120 days will no longer be enforceable against a small supplier.
What Interest Can You Charge on a Late Invoice?
Statutory interest at 8% above the Bank of England base rate, and the Bill makes it mandatory. With the base rate held at 3.75% in June 2026 (Bank of England, 2026), that works out at 11.75% on overdue commercial debts.
The right to charge this interest already exists under current law, but contracts routinely strip it out or swap it for a token "alternative remedy". The Bill removes that ability to contract out, so the interest entitlement travels with every commercial invoice automatically.
What we see most often is clients who have the legal right to charge late-payment interest but never use it, worried about damaging the relationship. Once the charge is built into the law and the contract cannot waive it, applying interest stops being an awkward favour you are choosing to skip and becomes the normal cost of paying you late.
What New Powers Does the Small Business Commissioner Get?
The Small Business Commissioner moves from a complaints service to an enforcer. The Bill lets the Commissioner investigate larger firms suspected of poor payment practices, adjudicate disputes between small and large businesses outside the court process, and take enforcement action (Small Business Commissioner, 2026).
The penalties have teeth. Legal analysis of the Bill points to fines of up to 1% of a company's annual UK turnover for non-compliance (Mayer Brown, 2026), which for a large buyer runs well into the millions. Boards and audit committees of persistent late payers will also have to publish commentary explaining poor payment performance.
There is a discipline for suppliers too. A new statutory time limit covers raising invoice disputes, and a customer who queries an invoice late or without proper detail will owe the supplier a fixed sum rather than using a vague "dispute" to delay payment.
Construction Firms and Retention Payments
The Bill includes a measure aimed squarely at construction: a ban on deducting and withholding retention payments under a construction contract, with further consultation on the timing of when it starts (GOV.UK, 2026).
Retentions, where a percentage of each payment is held back until a job is signed off, regularly trap cash for months and are lost altogether when a paying contractor goes insolvent. For subcontractors that money is often the margin on the job.
In our experience, retention disputes are one of the most common reasons construction subcontractors run short of working capital despite a full order book. If you work in the sector, keep your retention records tight now, the same way you should already be tracking your CIS deductions and returns, so you can show exactly what is owed when the new rules land.
When Do the New Rules Take Effect?
Not before 2027. The government has been clear it will allow an appropriate lead-in time before the powers come into force, and the construction retention measure faces its own separate consultation on timing.
That delay is the opportunity. The firms that benefit most will be the ones whose credit control is already sharp when the law changes, not the ones scrambling to react. One question clients always ask is whether they should wait for the Bill before acting. The answer is no.
Review your standard payment terms, make late-payment interest a line in your contracts rather than an afterthought, and run a weekly check on who owes you what. A disciplined 13-week cash flow forecast will show you the cash gap a slow payer creates long before it becomes a crisis, and a routine financial health check will flag the customers worth firmer terms.
Frequently Asked Questions
When does the Commercial Payments Bill become law?
The Bill was introduced to Parliament in May 2026 and is still going through the legislative process. The government has said the new rules will not take effect before 2027, with an appropriate lead-in time, and the construction retention ban is subject to a separate consultation on timing.
Can I charge interest on late payments right now?
Yes. Under existing law you can charge statutory interest at 8% above the Bank of England base rate, currently 11.75%, plus a fixed compensation sum per invoice. Many businesses simply never apply it. The Commercial Payments Bill makes that interest mandatory and stops contracts removing it.
Does the 60-day cap apply to all my customers?
No. The cap targets payment terms imposed by larger firms on smaller suppliers. Contracts between two large businesses are exempt, and there are strictly limited carve-outs. It sets the maximum a big customer can make you wait, not a fixed term for every invoice you raise.
What counts as a "large" business under the rules?
The Bill focuses on payment terms between businesses of different sizes, with the duties falling on larger purchasing firms. The precise thresholds will be confirmed as the legislation is finalised, so the practical step now is to identify which of your customers are clearly large companies likely to be caught.
How should a small business prepare before the rules start?
Tighten credit control now. Set clear written payment terms, build the right to late-payment interest into your contracts, invoice promptly, and review who owes you what every week. A rolling cash flow forecast will show the impact of slow payers before they put the business under real pressure.
If late payment is squeezing your cash flow, talk to our team. We can review your payment terms, set up credit control that actually gets invoices paid, and help you prepare for the new rules before they take effect in 2027.