The Commercial Payments Bill, introduced to Parliament in May 2026, would reshape how large UK companies pay their smaller suppliers. This article sets out what the Bill proposes, what the existing rules already do, and how the changes could alter cash planning on both sides of an invoice.
What the Bill proposes
According to GOV.UK, the Bill was introduced in the House of Lords on 19 May 2026. Its central measures, as described in the government’s overview of the Bill, are:
- maximum payment terms of 60 days, with “strictly limited exemptions”;
- mandatory interest on late payments at 8% above the Bank of England base rate;
- a right for suppliers to a fixed sum where a purchaser raises a dispute late or without sufficient information;
- a ban on deducting and withholding retention payments under construction contracts, with further consultation planned on timing;
- stronger powers for the Small Business Commissioner.
The government says the cap applies to large firms paying smaller suppliers, including sole traders, freelancers and family businesses. The overview does not set out size thresholds for “large” and “small”, so those details matter once the legislation is scrutinised and, later, implemented.
Why is late payment treated as a national problem?
The government’s own press material puts the scale in stark terms. It says late payments cost the UK economy £11 billion a year and that around 38 businesses close each day because of them, which it expresses as 266 a week. These are government estimates, and a closure with several causes cannot be put down to one unpaid invoice, but the direction of the argument is clear: a late invoice moves a financing burden from the buyer to the supplier.
That is also why the issue is covered in broader cash-flow analysis. As explained in why growing businesses still run out of cash, wages, VAT and PAYE fall due on fixed dates whatever customers do. A supplier paid on day 90 is, in effect, lending to its customer for three months, usually at its own cost of borrowing.
What do the current rules already say?
Late payment is not unregulated today. GOV.UK guidance on charging interest on commercial debt says the statutory rate is 8% plus the Bank of England base rate for business-to-business transactions. The guidance adds two limits: statutory interest cannot be claimed where a contract sets a different rate of interest, and a lower rate cannot be used in contracts with public authorities.
The gap, as the government frames it, is in practice rather than principle. Many small suppliers do not claim interest because they fear losing the customer. The Bill’s answer is to make interest mandatory, rather than something a supplier has to ask for and risk the relationship.
How much would interest actually be worth?
A worked example shows the scale. The base rate below is an assumption chosen for illustration and is not a current figure.
| Item | Illustrative figure |
|---|---|
| Invoice value | £10,000 |
| Assumed base rate | 4.0% |
| Statutory margin | 8.0% |
| Annual interest rate | 12.0% |
| Days late | 60 |
| Interest due | £197.26 |
The arithmetic is £10,000 × 12% × 60 ÷ 365 = £197.26. The sum is real money but small beside the invoice. Interest compensates a supplier for its financing cost; it does not recover the lost flexibility of having £10,000 unavailable for two months. The government’s March announcement used the same invoice size and delay: £10,000 paid 60 days late would leave the supplier owed £10,293.15 in total, made up of £193.15 of mandatory interest plus £100 of compensation. The slightly lower interest figure reflects a lower base rate than the 4.0% assumed in the table above.
The more important effect may be on behaviour. If interest is automatic, a buyer has a reason to pay on time that does not depend on the supplier being brave enough to chase.
What changes at the Small Business Commissioner?
The overview says the Small Business Commissioner would gain authority to investigate poor payment practices, make recommendations, enforce through directions and penalties, adjudicate disputes outside court, and enforce reporting compliance. The government’s March announcement refers to fines “worth tens of millions” for firms that persistently pay late or fail to comply; the Bill overview itself does not set an amount.
The same announcement says the Commissioner recovered three times more overdue invoices in 2025 than in 2024. That suggests the body’s role was already growing before the Bill. For a supplier, the practical difference is that an out-of-court route to resolve a dispute could be quicker and cheaper than litigation.
What does accountability at board level involve?
Boards or audit committees of persistently late-paying large companies would have to publish commentary on their poor payment performance and what they are doing to improve it. The point is reputational as much as legal. Payment practices become a governance topic rather than a procurement detail, in the same way that other risks are reported to investors and lenders.
For readers following how companies manage budgets, this links to the cost pressures described in how businesses manage rising costs. Stretching supplier payments has long been an easy source of cheap financing; a hard cap removes that option and pushes large buyers towards other ways of managing working capital.
How might suppliers and buyers adjust?
For smaller suppliers
- Forecasting. A firm that knows its largest customers must pay within 60 days can build a more reliable cash forecast, though a cap is a maximum and not a guarantee of faster payment.
- Contract review. Terms, dispute clauses and invoice requirements become more important if a late or poorly evidenced dispute creates a right to a fixed sum.
- Financing. Overdrafts and invoice finance remain relevant, but a shorter, firmer collection window may reduce how much is needed.
For larger buyers
- Payment processes. Invoice approval, purchase-order matching and dispute handling would need to run fast enough to stay inside the cap.
- Working capital. Firms that rely on long terms would need to replace that financing.
- Reporting. Persistent late payment would carry a public explanation.
The balance between these effects will depend on the final text, including the exemptions and thresholds. Since the Bill is a proposal, its final form may differ from the version described here.
What should readers watch as the Bill progresses?
Several points are worth tracking. First, who counts as “large” and “small”, because that determines who benefits. Second, the limited exemptions to the 60-day cap. Third, the timing of any retention ban, which the government says will be subject to further consultation. Fourth, how the Commissioner is resourced, since powers only help if there is capacity to use them.
Parliament may amend the Bill, and commencement dates were still to be set when the overview was published. Anyone relying on a particular rule should check its status on GOV.UK and the UK Parliament website.
Why does the base rate sit inside the interest formula?
Because the statutory rate is pegged to the Bank of England base rate, the cost of paying late moves whenever policy changes. The mechanics of that link are covered in why Bank of England rate decisions ripple through the economy. For a buyer, a higher base rate makes a late payment more expensive and shortens the point at which delay stops being a cheap source of funding. For a supplier, it raises the compensation on the same invoice, although never by enough to remove the underlying uncertainty about when cash will arrive.
The 8% margin stays fixed in the Bill’s description, so the variable part is the base rate alone. That is why any interest estimate should be recalculated with the official rate on the day the invoice falls overdue, rather than relying on an old figure.
Conclusion: a shift of financing costs back to buyers
The Commercial Payments Bill is an attempt to move the cost of financing trade credit away from the smaller party. If enacted as described, a 60-day cap, automatic interest and a better-armed Small Business Commissioner would give suppliers more predictable cash flow and large buyers a stronger incentive to pay on time. The size of the effect depends on details still to be settled.
This article provides general information and analysis, not personalised financial advice. Legislation, rules and rates change.
Sources: GOV.UK
