The Commercial Payments Bill: what it means for trades and subcontractors

Last updated 21 October 2026. This is a bill, not law. It can still change in the House of Commons, and most of it will only start on dates the government sets later. General information, not legal advice.

Where the bill is now

• 20 October 2026: passed the House of Lords. Hansard records that the bill was read a third time (only a technical "privilege amendment" was made) and then "Bill passed and sent to the Commons".
• Before that: it was introduced in the Lords on 19 May 2026 by Lord Leong for the Department for Business and Trade, with second reading on 9 June, committee stage on 21 July and report stage on 15 September 2026.
• Next: the House of Commons goes through the same steps (first reading, second reading, committee, report and third reading). If MPs change it, the Lords must agree the changes. Then it needs Royal Assent to become an Act. When we checked on 21 October 2026, no Commons dates had been published.
• After that: even once it is an Act, the main rules only start on days the government sets by regulations. GOV.UK says there will be a lead-in time and a transition period, and that the changes won't apply retrospectively.

The summary below is based on the bill as amended at report stage in the Lords (HL Bill 55), which is the text that passed on 20 October.

The main changes at a glance

A 60-day cap on payment terms

For ordinary business-to-business contracts, the bill says a payment must fall due within a set period that can't be longer than 60 days, or 30 days if the customer is a public authority. The clock starts from the latest of these:

• the day you do the work or supply the goods,
• the day the customer knows how much they owe, for example when they get your invoice, or
• the day after any agreed checking or sign-off process ends. A sign-off period over 30 days must be fair and reasonable, otherwise it counts as finished after 30 days.

A term giving longer than the maximum would be void. If there is no valid term, payment would be due after 30 days. Side deals that try to get round the cap, such as a settlement or a letter where you "waive" the agreed terms, would also be void.

Construction work works slightly differently. Under the Construction Act you already have a "due date" and a "final date for payment". The bill says the final date for payment must fall within 60 days of the due date (30 days for public bodies). If the contract gives longer, that term is void and the fallback rule in the Scheme for Construction Contracts applies instead.

Example. A main contractor's terms say you get paid "90 days from receipt of invoice". Today that may stand if it's fair to both sides. Under the bill, once in force and for a contract signed after that date, the 90 days would be void and the 60-day maximum (or the Construction Act fallback) would apply instead.

Exemptions. The government could make regulations exempting some written contracts, for example where a sole trader or smaller business is the buyer from a bigger supplier, or where both sides are large businesses. Contracts with public bodies can't be exempted. The government also gets a power to shorten the 60 and 30 days later, and must consult on that within five years of the cap starting.

Late payment interest you can't sign away

Under today's law, the Late Payment of Commercial Debts (Interest) Act 1998 gives you statutory interest of 8% over the Bank of England base rate, but GOV.UK says you can't claim it if your contract sets a different rate. That is how some contracts offer a lower rate or none at all.

The bill makes statutory interest an implied term of every contract the Act covers. Any term that excludes or reduces it would be void. That includes a lower rate, a later start date (including "no interest while anything is in dispute") or extra conditions on claiming. The government's factsheet describes this as "mandating interest on late payments at 8% above the Bank of England base rate". The bill also renames the 1998 Act the Commercial Payments and Interest on Late Payment Act 1998.

For construction work, interest would run from the day after the final date for payment. For other work, it would run from the day after the payment was due.

A fixed sum when a dispute is raised late

If a customer holds back money because of a dispute but only tells you in the final week before payment is due (or later), or doesn't give enough detail for you to understand the problem, the bill would let you claim a fixed sum of £40 or 1% of the price (or of the disputed part), whichever is higher. It can be reduced or cancelled where justice requires it, for example if you were in breach of contract. This doesn't apply to construction contracts, which already have their own payment notice rules, so it matters more for non-construction work such as cleaning, delivery or maintenance contracts.

Cash retentions in construction: banned after two years

Retentions are the percentage a main contractor or client keeps back until completion or the end of the defects period. The bill bans them in construction contracts covered by the Construction Act (and the Northern Ireland equivalent) in stages:

1. Start date. The retention rules start on a day the government sets by regulations. GOV.UK says it will consult further on the timing.
2. Two-year transition. Retention clauses agreed during the first two years can still be used for now. They stop working three years after the start date. Any money still held then must be paid out, with a due date 30 days later and a final date for payment up to 60 days after that (30 for public bodies).
3. After two years. Any new retention clause agreed after the transition would be void, even in an older contract. Changing an old retention clause to make it worse for the subcontractor would also be void. Retention clauses agreed before the start date and never changed aren't made ineffective by these rules.
4. Penalty. If money is held back as a retention when it should have been paid after the transition, the subcontractor could claim a fixed sum of £40 or 50% of the amount held, whichever is higher, on top of statutory interest and compensation. It can be reduced where justice requires it.

Homeowner work: the Construction Act doesn't cover a contract with a homeowner for work on the home they live in (section 106), so these retention rules are aimed at commercial and contractor chains, not domestic jobs.

New powers for the Small Business Commissioner

• Adjudication. A small business could refer a payment dispute with a larger business to a scheme run by the Small Business Commissioner. The decision would be binding unless and until a court, arbitration or a written agreement settles it differently, and could be enforced like a county court order. Who counts as "small", time limits and the steps to take first would be set in regulations.
• Investigations. The Commissioner could investigate larger businesses suspected of persistently paying late or using void terms, make recommendations and directions, and impose financial penalties.
• Reporting. Large companies already have to report their payment practices. The bill lets regulations add penalties for not reporting. GOV.UK says large companies will also have to report the interest they've paid and owe.

What still has to happen

• The Commons stages, any further amendments and Royal Assent.
• Commencement regulations setting the start dates. Different parts can start on different days, and the retention ban starts two years after the retention rules begin.
• Regulations for the detail: payment term exemptions, business size definitions, the adjudication scheme and reporting penalties.
• The new payment term and interest rules won't apply to contracts made before they start, so existing contracts carry on under today's rules.

We'll update this page as the bill moves through the Commons.

What you can do now, under today's law

1. Claim what you're already owed. For late payment by another business you can claim statutory interest at 8% over the Bank of England base rate, plus a fixed sum of £40 (debts up to £999.99), £70 (£1,000 to £9,999.99) or £100 (£10,000 or more), and reasonable recovery costs. Work it out with our late payment interest calculator, which fills in the right reference base rate. See late payment interest for subcontractors for the steps.
2. Put a clear due date on every invoice. Interest only runs once an invoice is late, so the due date matters. See payment terms and late payment and invoice due dates explained.
3. Read the payment terms before you sign. Push back on long terms and "pay when paid" wording. Under the Construction Act, a clause that makes payment depend on your contractor being paid by someone else usually doesn't work unless that third party is insolvent.
4. Track your retentions. Write down how much is held on each job and when it's due back, then invoice for the release on time.
5. Chase politely, then firmly. Use our chasing guide and late payment fees explained.