Introduction
For a long time, late payments have been a significant issue for UK businesses, particularly small and medium-sized businesses, sole traders and freelancers. These delayed invoices significantly disrupt cash flow, something critical to growing businesses, who at their most vulnerable require stable liquidity to prevent insolvency. The extent of these issues was highlighted in 2025 research by London Economics for the Small Business Commissioner (“SBC”) which estimate these late payments costs the UK economy ‘£11 billion per year and result in 38 UK businesses closing every day’. Accordingly, the existing protections have been widely criticised as insufficient at tackling the age-old imbalances between small suppliers and large purchasers, resulting in the Commercial Payments Bill being presented.
Legal changes
The Bill introduces a range of unprecedented and substantive reforms as shown below, significantly tightening payment obligations and enforcement mechanisms:
- Maximum payment terms: A statutory cap of 60 days for most contracts (30 days where a public authority is involved) with limited exceptions and non-compliant terms rendered void.
- Mandatory interest: Under statute, late payments will continue to attract interest at 8% above the Bank of England base rate, however the ability for parties to contractually reduce or exclude this is no longer possible.
- Invoice dispute window: Suppliers have the right to recover a fixed sum from purchasers if they fail to raise disputes within a defined timeframe (the “last dispute day”)
- Construction sector reforms: A phased ban on retention payments in construction contracts, alongside tighter payment timelines and enhanced protections around payment notices.
- Enhanced enforcement: The SBC will be given substantial new powers to investigate poor payment practices, adjudicate disputes and impose sanctions, including fines of up to 1% of UK annual turnover.
Practical implications for businesses
But what do these changes mean for your business exactly? Some considerations are highlighted below:
- Contract review: Payment terms, will need to be revised and if they fall afoul of the new regime amendments will be required.
- Operational changes: How payments are made and disputes are carried out must be assessed in line with the new statutory timeframes. New systems guaranteeing invoice verification have a growing purpose.
- Cash flow review: The increased mandatory interest and potential penalties increase the cost of late payment making on-time payments even more vital. Larger organisations who manage complex supply chains, with long payment timeframes will need to carefully manage their new obligations to lower financial risk.
- Construction sector impact: The removal of retentions represents a significant shift in risk allocation, meaning construction projects will require consideration of this further aspect.
- Regulatory scrutiny: The expanded role of the SBC introduces a newfound and material enforcement threat, including investigations, directions to amend practices and reputational risk through any publication of non-compliance.
Future course of action
The reforms demonstrate a clear decisive move towards a more interventionist and supplier-protective payment regime, this undoubtedly increases the importance of proactive compliance and governance. Therefore, as the Bill is expected to progress with political support and is currently progressing through the House of Lords, most prudent businesses will consider acting in preparation of the changes by auditing payment practices, updating contractual frameworks and embedding compliance into internal functions.
DWF is well placed to support in navigating these changes, including reviewing contractual arrangements, advising on sector-specific impacts and developing practical strategies to mitigate risk while maintaining commercial agility.
Thank you to Alistair Waller, a trainee in our Commercial Team, for his assistance in creating this article.
