Commercial payments bill: What businesses need to know

The Commercial Payments Bill (introduced to the House of Lords in May 2026) is set to transform the way businesses manage their payment terms and supplier relationships.

Major changes are set to come into effect if the new bill is passed into law.

David Wozniak, associate in the commercial team, outlines the key changes below and looks at what they could mean for your business.

Change 1: Introduction of mandatory payment term

The new bill introduces a maximum payment term of 60 days for commercial contracts (as well as a 30-day payment term for public authorities that purchase goods and services). 

Any payment terms that exceed these timeframes will be void. 

Businesses will need to renegotiate their payment terms ahead of the new regime coming into force (which is expected to be sometime in 2027).  

Businesses that fail to comply with these payment terms can face fines or mandatory interest payments of 8% above the Bank of England base rate.

Change 2: Reporting obligations for larger businesses

The bill strengthens the existing payment reporting regime for large companies (under the Reporting on Payment Practices and Performance Regulations 2017 (RPPP).

It gives the commissioner the power to take enforcement action against businesses that fail to comply with their payment reporting obligations. It also proposes changes to the RPPP to require businesses to disclose the value of statutory interest on late payments.

Change 3: Publishing poor payment information

Under the bill, information about poor payment performance will become more accessible to suppliers, customers, investors and regulators. This information could impact supplier and investor confidence and become an important factor in environmental, social and governance (ESG) reporting. 

Suppliers bidding for public sector contracts above £5 million will have to demonstrate that they pay at least 95% of their suppliers within 60 days. If a supplier is unable to prove this, it will likely have its bid rejected. (There are some exceptions to this, and not all public sector contracts worth over £5 million are covered.)

Change 4: Prohibition of retention payments in construction contracts

The bill will have a significant impact on the construction industry. Construction contracts commonly allow clients to retain a percentage of sums due to the contractor as security for defect rectification and project completion. 

After a two-year transition period, new and pre-existing payment retention clauses in construction contracts will be void under the new bill. 

Following that transition period, the bill also grants payees an implied right to a fixed sum on top of statutory interest and late payment compensation. 

Change 5: Expanded powers of small business commissioner

Under the bill, the commissioner will establish an adjudication scheme to hear and determine payment disputes between small and larger businesses, and it can make binding interim decisions. 

In addition, the commissioner is granted enhanced investigatory and enforcement powers. 

Crucially, the commissioner can fine businesses that engage in persistent late payment practices or breach enforcement directions (up to 1% of their annual turnover).

All businesses that operate as part of complex supply chains, , including manufacturing, retail, hospitality and leisure should review their existing contractual frameworks now. If this bill is passed into law it will affect them and they need to understand how. 

If you need any help or advice on where you stand or what action to take, please get in touch with David Wozniak on tel: 0191 211 7831 or email: [email protected]