Commercial Payments Bill: what businesses need to know

Small and medium-sized enterprises (SMEs) have long faced pressure to accept unfavourable contract terms when dealing with larger counterparties. In practice, limited bargaining power often leaves smaller suppliers exposed to delayed payments, with extended payment cycles effectively operating as a form of informal financing, allowing larger businesses to retain cash, while SMEs absorb the working capital burden.

Recognising these challenges, the Government has introduced the Commercial Payments Bill (also referred to as the Small Business Protections Bill), described as the “toughest crackdown on late payments in over 25 years.” The Bill proposes a range of measures designed to accelerate payment timelines and strengthen protections within commercial contracts, with the aim of improving cash flow and reducing payment risk for smaller businesses.

While the legislation is not yet in force, it signals a clear shift towards greater regulation of commercial payment practices. The key question for businesses is: what will these changes mean in practical terms for commercial contracts?

Key changes at a glance:

The Bill introduces four core reforms:

1.          A statutory cap on payment terms

2.          A mandatory right to statutory interest on late payments

3.          A fixed deadline for disputing invoices

4.          Expanded powers for the Small Business Commissioner, including the ability to impose significant fines

Statutory maximum payment terms

The Bill introduces a maximum payment term of 60 days, reduced to 30 days where the purchaser is a public authority. Limited exceptions apply, including where both parties qualify as large undertakings, where the purchaser is the smaller party, or where the contract relates to the import or export of goods and services.

Subject to these exemptions, parties will no longer be able to contract out of these limits. Any payment terms exceeding the statutory maximum will be void, and where no compliant term exists, a default payment term of 30 days will be implied.

What this means (particularly for SMEs):

• Provides greater certainty as to when payment will be received
• Reduces pressure to accept extended payment terms in order to secure work
• Improves cash flow predictability, supporting more effective financial planning
• May reduce the time and resource spent chasing overdue invoices

For larger businesses:

• Standard contract templates will need to be reviewed and updated
• Existing working capital and payment strategies may require adjustment

Mandatory statutory interest on late payments

The Bill introduces a mandatory right to statutory interest on late payments, across all commercial contracts.

Crucially, any contractual provision seeking to exclude or limit this entitlement will be void, removing the ability for parties to negotiate weaker protections.

What this means (particularly for SMEs):

• Strengthens negotiating position, as interest rights can no longer be waived in practice
• Provides a clear financial remedy without the need to renegotiate contract terms
• Increases the cost of late payment, creating a stronger incentive for prompt settlement

For larger businesses:

• Increased exposure to statutory interest claims
• Greater need to strengthen payment processes and internal controls
• Deadline for disputing invoices

The Bill introduces a mechanism aimed at discouraging late or tactical invoice disputes. Where a purchaser raises a dispute after the “last dispute day” (generally eight days before the payment due date), or fails to provide sufficient detail, they may be required to pay a fixed sum to the supplier.

What this means (particularly for SMEs):

• Reduces the use of last-minute disputes as a tactic to delay payment
• Encourages earlier transparency as to whether invoices will be challenged
• Provides a statutory entitlement to compensation where disputes are raised too late

For larger businesses:

• Requires more proactive invoice review and dispute management processes
• Internal systems will need to ensure disputes are identified, escalated and documented promptly

Expanded powers of the Small Business Commissioner

The Bill significantly strengthens the role of the Small Business Commissioner, including powers to:

• Investigate businesses suspected of poor payment practices
• Adjudicate payment disputes between smaller suppliers and larger customers
• Issue binding decisions in certain disputes
• Impose substantial financial penalties on persistent late payers
• Take enforcement action for breaches of payment legislation
• Monitor and enforce compliance with payment reporting obligations

The Commercial Payments Bill represents a significant shift in the regulation of commercial payment practices. By imposing limits on payment terms, strengthening rights to interest, and introducing clearer rules around disputes and enforcement, the Bill seeks to address long-standing imbalances in supplier–customer relationships.

For SMEs, these reforms offer the prospect of improved cash flow, greater certainty, and stronger legal protections when dealing with larger counterparties. For larger businesses, the changes will require a careful review of contract terms, payment practices, and internal processes to ensure compliance.

While the legislation is not yet in force, its direction is clear. Businesses on all sides of the supply chain should begin preparing now, ensuring that their contractual arrangements and operational processes are aligned with the more structured and regulated framework the Bill will introduce.

If you would like advice on how these changes may affect your business or assistance reviewing your commercial contracts, please get in touch with our commercial team.