Law on late payments set for a rewrite: what do you need to know?

The Commercial Payments Bill set sail on its voyage through Parliament on 19 May. It is likely to arrive on the statute book some time in 2027. What's coming? 

The Department for Business & Trade's handy explainer and the Bill’s Explanatory Notes explain. Setting aside some specific changes relevant to construction contracts, these are the headlines:

1. Setting payment terms in commercial contracts at a maximum of 30 days for public authorities (where the contract is not covered by the Procurement Act 2023) and 60 days for non-public authorities, subject to limited exemptions.
2. Prohibiting contractual terms that exclude or vary the right to statutory interest for late payments.
3. Giving suppliers the right to a fixed sum where a purchaser raises a dispute late or without sufficient information. 

Underpinning these new legislative measures to address poor payment practices will be new, stronger powers for the Small Business Commissioner (SBC) and new reporting requirements for large businesses. The SBC will be given the power to:

1. Investigate larger businesses suspected of persistently engaging in poor payment practices and breaching payments legislation, make recommendations and take enforcement action where appropriate (including the power to make directions and impose financial penalties).
2. Adjudicate contractual payment disputes between small and larger businesses outside of the court process and make binding interim decisions.
3. Take enforcement action against larger businesses that are in breach of their statutory reporting requirements on payment practices and performance.

Comment

This legislation hasn’t sprung out of nowhere - a public consultation on tackling poor payment practices ran from 31 July 2025 to 23 October 2025. The Government responded to the consultation on 24 March 2026, setting out its intended approach – now captured in the draft Commercial Payments Bill (which will amend the Late Payment of Commercial Debts (Interest) Act 1998. 

If these changes snuck up on you while you weren’t looking, never fear. There is still plenty of time for you to prepare. Businesses should ensure they (a) understand their obligations under the proposed legislation and (b) review their payment processes and contract templates to determine what changes (if any) are required. For example:

• Ensuring ability to pay within any new legal time limits
• Adjust contract templates to reflect new legal maximum payment terms.
• Adjust contract templates to remove clauses providing for interest on late payment lower than 8% above Bank of England base rate.
• Ensure you are compliant with any existing legal requirements to report on your payment practices. 

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