The Commercial Payments Bill: what UK late payment law means for your AP team

If your supplier terms run past 60 days, or your contracts swap statutory interest for something milder, the Commercial Payments Bill UK lawmakers are debating would void both clauses in new contracts once it commences. CFOs, controllers, AP specialists, and treasurers can review contract clauses and payment-clock calculations now, using the Bill’s proposed changes and parliamentary progress to plan while the text can still change.

Key takeaways

• The Bill would put the most pressure on invoice-date capture and dispute timing; it would also affect payment-run cadence.

• Maximum terms would be 60 days for business purchasers and 30 days for public authorities, and longer terms in new contracts would be void.

• Statutory interest becomes an implied term that contracts cannot exclude or reduce; they cannot delay it either.

• The Small Business Commissioner would gain binding adjudication powers alongside powers to investigate and impose penalties.

• The Bill is still in the House of Lords, and government expects the 60-day cap to start no earlier than 2027.

What is the Commercial Payments Bill?

The Commercial Payments Bill is UK legislation, introduced in the House of Lords on 19 May 2026, that replaces optional late payment protections with mandatory maximum payment terms, interest that contracts cannot remove, and a Small Business Commissioner able to issue binding decisions and financial penalties. It is a Department for Business and Trade bill, led in the Lords by Lord Leong, and it amends the Late Payment of Commercial Debts (Interest) Act 1998. It has completed Lords Report stage; the official bill page tracks each stage.

The core measures: 60-day cap, 30-day terms, and non-waivable interest

Business purchasers will have at most 60 days to pay, and public authorities 30. Statutory interest will run on anything paid outside those windows whatever the contract says.

The period starts on the latest of these days:

• the day the supplier performs;

• for hire of goods, the last day of the hire period;

• the day you have notice of the amount, which may be an invoice;

• the day after any acceptance or verification procedure completes.

The Bill treats verification as complete after 30 days unless the contract has a longer term that is fair and reasonable, and the purchaser has to prove it is. Where a contract is silent, or its term is void, the Bill implies a 30-day term. Plan for funds to reach the supplier by the due date, so your payment-run cut-off decides whether an invoice is late. For example, routing each invoice into approval workflows the day it arrives keeps that cut-off within reach.

A 45-day cap was floated in 2025 and set aside. Government can shorten the periods by regulations but not lengthen them.

The Bill also voids any term that excludes the interest right, applies a different rate, adds conditions, or delays the start, including during a contractual dispute. The rate stays at 8% plus the Bank of England base rate. Parties remain free to agree other consequences of late payment. For AP, interest becomes a cost to budget for.

New enforcement powers for the Small Business Commissioner

The Commissioner moves from non-binding recommendations to binding decisions and powers to investigate and impose financial penalties.

• Adjudication: A small business (fewer than 50 staff under the current definition) refers a dispute about money owed by a larger business. The decision binds unless a court or arbitration finally decides otherwise, or the parties reach a final written agreement. Decisions can be enforced through the courts. Construction is excluded because it already has statutory adjudication.

• Investigation, directions, and penalties: The government response says the Commissioner may investigate a larger business’s payment practices on wider evidence than complaints, including anonymous sources. After hearing representations, the Commissioner may publish a notice naming the business. Directions can require amended standard terms or staff training. They can also require an independent review. Penalties are reserved for persistent poor practice or ignoring a direction without reasonable excuse.

Under the Commissioner’s current process, a supplier raises the complaint with its customer first, then complains in writing within 12 months. For AP, dispute notices and payment records become evidence a supplier can put before an adjudicator.

Reporting and board accountability for large companies

Large companies already report payment performance twice a year. The Bill lets the Commissioner oversee that duty, government plans secondary legislation on interest reporting, and it intends boards or audit committees of persistent late payers to publish commentary on GOV.UK.

The Reporting on Payment Practices and Performance Regulations 2017 set the duty:

• Scope: Companies qualify by exceeding two of three thresholds on their last two balance sheet dates. From 6 April 2025, the financial thresholds are £54 million turnover and £27 million balance sheet total; the employee threshold is 250 (duty to report guidance).

• Filing and approval: Companies file within 30 days of each half-year. Reports cover payment timing bands and late payments, as well as disputes. A named director approves each one.

For financial years from 1 January 2026, payment data also sits in the directors’ report, which auditors check for consistency with the accounts. Government also plans a bigger role for audit committees in assuring payment data, so it makes sense for AP to agree with the audit committee now who signs off the figures.

Where the Bill stands in Parliament and when it takes effect

The stages record and Hansard give the dated history:

Sources: UK Parliament, Commercial Payments Bill [HL] stages page and Lords Hansard.

The Bill text fixes the caps, the void-term rules, non-waivable interest, the Commissioner’s powers, and the two-year retention transition. Regulations or later decisions will settle the commencement date, size definitions for exemptions, the adjudication procedure, and interest reporting. Government has said the 60-day cap will start no earlier than 2027, which makes 2027 the sensible planning year.

How the Bill changes the 1998 Late Payment Act and the Prompt Payment Code

The Bill keeps the 1998 Act’s interest rate and 60-day limit and removes the two escape routes that made interest and the 60-day cap optional.

• 1998 Act: Purchasers could substitute a “substantial contractual remedy” for statutory interest and agree terms past 60 days unless “grossly unfair”. Few suppliers claimed interest because they feared losing the customer.

• Voluntary code: Alongside the Act sat the Prompt Payment Code. The Fair Payment Code replaced it in December 2024, and the code had no legal force.

Sources: Commercial Payments Bill [HL] text on UK Parliament, GOV.UK late payment guidance, Office of the Small Business Commissioner Fair Payment Code pages, and the EU Late Payment Directive on EUR-Lex.

Exemptions, carve-outs, and edge cases

Exemptions are narrow and mostly size-based. Most depend on regulations that do not yet exist.

• Contracts signed before commencement: The new terms do not apply to them.

• Smaller purchaser, larger supplier: Where the purchaser is smaller than the supplier, the cap does not apply once size regulations are in force.

• Large-to-large: Two large undertakings on the contract date may agree their own terms, again once size regulations exist.

• Descriptions set by regulation: Government intends a limited exemption for imports and exports.

• Public contracts: Contracts under the Procurement Act 2023 sit outside the ordinary rule and already carry implied 30-day terms that pass down the supply chain.

The Bill sets no certification process; a business evidences an exemption in the contract itself. The contract must be in writing and state which exemption condition applies. Neither party can be a public authority, and size is tested on the contract date. A large-to-large contract that omits that statement falls under the cap, and any longer term becomes void.

Defence, aerospace, and government-to-government export contracts have no express exemption. Complex goods may need more detailed verification, but under the Bill a longer verification period must still be fair and reasonable. Any sector exemption would need regulations (see the government response).

Sector impact: construction retentions, public procurement, and defence

Construction gets the biggest change: a ban on cash retentions, phased in over two years with a three-year backstop for sums already held, plus the 60-day and 30-day caps applied to construction payment periods.

• Retentions: An unauthorised retention carries a fixed sum the contract cannot exclude. Transitional retained sums fall due after the last retention day, with 30 days to pay for public bodies and 60 days for other payers.

• Construction example: Build UK’s first retentions benchmark found tier one members withhold an average 2% retention. On a £500,000 subcontract, that is £10,000 held back.

• Public procurement: Public buyers must pay within 30 days. A prime that receives payment on day 30 and has historically paid sub-contractors on day 60 or later loses that float, and the retention ban removes the second cushion. For a treasurer at a prime, committed spend on purchase orders could convert to cash out within about a month of the client paying.

• Defence: The MOD already aims to pay 90% of undisputed SME invoices within five days, so the squeeze sits in prime-to-tier-two terms. Contracts between large primes and equally large suppliers may fall within the large-to-large exemption, though smaller suppliers’ contracts won’t.

What finance, procurement, and contract teams should do now

Start with payment timing and dispute records, then calculate the interest exposure before reviewing contract templates.

Payment clock and dispute notices

The first job is the clock. Because the period runs from the latest trigger day, AP needs every trigger date on file, not only the invoice date. Set the system due date as the day funds must land with the supplier, minus your bank’s processing time.

Dispute notices need attention too, because the clock does not stop for a dispute. The purchaser must notify a dispute, with enough detail for the supplier to understand it, at least eight days before payment is due (the last dispute day).

A late or thin notice triggers a fixed sum the contract cannot exclude, unless it’s remitted in the interests of justice. Construction contracts are outside this rule.

Interest exposure

Next, size the exposure at today’s rate. Bank Rate has been 3.75% since 18 December 2025, and the statutory rate uses the Bank Rate in force on 30 June or 31 December.

For interest starting between 1 July and 31 December 2026 that gives 8% plus 3.75%, or 11.75% a year. A £50,000 invoice paid 20 days late accrues roughly £322 of simple interest (£50,000 × 11.75% × 20 ÷ 365), plus a fixed recovery sum.

Before commencement:

1. List every contract template with terms over 60 days (30 for public-authority work) and plan renegotiation, because those clauses become void in new contracts.

2. Remove clauses that restrict or delay statutory interest.

3. Cut verification and acceptance periods to 30 days, or document why a longer period is fair and reasonable.

4. Build an eight-day dispute window into AP, so disputes with full detail reach the supplier before the last dispute day.

5. Capture invoice receipt, goods received note, and funds-received dates on each invoice so the clock is auditable.

6. Confirm whether you are in reporting scope and name the approving director.

7. In construction, inventory retention clauses and plan release of held sums before the last retention day, three years after the ban commences.

Because the Bill is still amendable and the exemption regulations are not yet made, treat this as operational preparation and take qualified legal advice before changing executed contracts.

An invoice that waits in an inbox for a week before anyone approves it has spent a week of its 60-day window.

Spendesk is an all-in-one spend management platform consolidating company cards, expense management, accounts payable, procurement, and budgeting. With Spendesk, the AP team captures each invoice the day it arrives, so the payment clock and the approval queue start together instead of a week apart.

If the AP queue is the main bottleneck, see how Spendesk connects invoice capture, approval, matching, payment, and tracking, so the team can focus on exceptions.

Frequently asked questions about the Commercial Payments Bill

Contract timing and exemption conditions determine which terms your team needs to review. The questions below cover renewals and variations, then explain exemptions and the differences UK firms trading in the EU should watch.

Are existing contracts caught if they are renewed or varied after commencement?

The new terms apply to contracts entered into after the relevant provisions commence, so pre-commencement contracts keep their existing clauses. Whether a renewal or variation counts as a new contract is a point to check with legal advisers once the commencement rules are published.

Which contracts are exempt?

Contracts signed before commencement are exempt. Once size regulations are in force, large-to-large contracts and contracts where the purchaser is smaller than the supplier are exempt too, but only if the written contract names the exemption condition. Size is tested on the contract date, so whether a later change in size affects an exemption is a point for legal advisers.

What should UK firms that also trade in the EU watch?

Expect EU and UK contract templates to diverge for now. The EU Late Payment Directive still allows longer agreed terms that are not grossly unfair, the test the UK Bill removes. The Commission’s 2023 proposal for a 30-day cap with automatic interest is still awaiting a Council position.