The Commercial Payments Bill: Practical Implications for Commercial Contracts and Supply Chains

The Commercial Payments Bill completed its Committee Stage in the House of Lords on 21 July 2026 and is scheduled for third reading in the House of Lords on 20 October 2026. Whilst the Bill still has a long way to go before Royal Assent, the current proposals as drafted would introduce a significant reform of UK commercial payment rules. For public authorities procuring goods and services, large companies managing supplier relationships, and SMEs seeking cash flow certainty, the changes are substantial. Once in force, the Bill will affect every new commercial contract, and businesses should monitor progress of the Bill so that they are ready to introduce compliance measures once it is in final form.

Key proposals at a glance

1. The Bill proposes amendments to the Late Payment of Commercial Debts (Interest) Act 1998 (to be renamed the Commercial Payments and Interest on Late Payment Act 1998) (Act). These amendments, if enacted, will replace traditional freedom of contract with a prescriptive regime designed to rebalance bargaining power between larger buyers and smaller suppliers, ensuring prompt payment and contractual certainty.
2. The Bill also proposes mandatory maximum payment periods of 30 days for public authorities and 60 days for private sector buyers contracting with smaller suppliers.
3. Payment terms exceeding these caps will be automatically void and replaced by the statutory defaults regardless of what the contract states.
4. Statutory interest at 8% above the Bank of England base rate can no longer be contracted out. Where parties believe an exemption applies (e.g. both are large undertakings), the contract must expressly state the exemption relied upon. Silence is not sufficient; if the exemption is not expressly invoked, the default caps apply.
5. Buyers must raise invoice disputes within a specified timeframe. Late or insufficiently detailed disputes entitle the supplier to recover a fixed sum.
6. The Small Business Commissioner will gain powers to establish a payment disputes adjudication scheme, investigate persistent poor payment practices by larger businesses, and issue enforcement directions, publish findings, and impose financial penalties of up to 1% of UK annual turnover.

Impact on large companies and supply chains

For large companies, the primary operational risk lies in the supply chain. The Bill proposes voiding not only payment terms exceeding 60 days in private sector contracts but also related terms in settlement agreements or waivers that purport to override compliant payment terms in the main contract. For businesses which rely on longer payment terms, the Bill may have a significant impact on cash flow and working capital arrangements for new contracts.

Impact on SMEs and suppliers

SMEs and smaller suppliers could gain three concrete protections: stricter payment terms, mandatory late statutory interest for late payment and swifter dispute resolution with the Small Business Commissioner producing binding interim decisions enforceable through legal proceedings. This matters because the Government’s own data shows invoices from SMEs are more likely to be paid late than invoices from large companies. Late payment costs the UK economy an estimated £11 billion per year and is linked to 14,000 business closures annually.

Impact on the public sector

The Bill proposes that where a public authority procures goods, services or support from industry, it will be subject to the 30-day maximum payment period. This will not apply to contracts already within scope of the Procurement Act 2023, into which 30-day payment terms are already implied. The Bill seeks to reinforce the Procurement Act 2023 regime by making statutory interest non-excludable and introducing fixed-sum penalties for late-raised disputes. The Bill would also insert new construction-specific payment rules into the Procurement Act 2023 (new sections 68A, 68B, 88A and 88B), including a power to shorten the 30-day period by regulations. The combined effect of the Bill, the Procurement Act 2023’s payment compliance notices and ongoing spot-check requirements means that late payment by public bodies will become increasingly visible, measurable and enforceable.

Practical steps to prepare your business

The Bill is not yet law. It completed Lords Committee stage in July 2026 and will undergo a third reading before passing to the House of Commons. The Government has committed to a lead-in period before commencement, and the measures will not apply retrospectively. However, based on the current proposals, the key actions businesses are likely to have to take include:

1. Review payment terms: Audit standard templates and live contracts for payment terms exceeding 60 days or relying on extended verification periods.
2. Strengthen dispute processes: Review invoice dispute notification procedures. The Bill penalises buyers who raise disputes late or without sufficient information—ensure processes capture disputes promptly and with adequate detail.
3. Audit exemption clauses: Where parties intend to rely on large-to-large exemptions, contracts will need to expressly identify the applicable exemption condition.
4. Monitor secondary legislation: The Bill gives the Secretary of State broad powers to exempt certain contract types by regulations. Such exemptions may prove critical for complex programmes, framework agreements, and long-term arrangements.
5. Update supplier communications: Consider proactive engagement with suppliers on payment terms changes. Early communication can support supplier relationships and reduce disputes when the new regime takes effect.
6. Train procurement and finance teams: Ensure relevant personnel understand the new compliance requirements, particularly around payment timing, dispute processes, and the consequences of non-compliance.

Further Reading

UK: Faster Payments, Tougher Rules: How the Commercial Payments Bill Could Transform UK Aerospace and Defence Contracting