UK’s New Late Payment Bill Explained: What Freelancers and Agencies Need to Know

The UK Government is proposing major changes to commercial payment rules. The Commercial Payments Bill is progressing through Parliament, but the proposed reforms do not apply yet.[1]

Lowdown

The Commercial Payments Bill was introduced in the House of Lords on 19 May 2026.[1]

It proposes major changes to commercial payment rules, including maximum payment periods, mandatory statutory interest, new rules for payment disputes, restrictions on construction retentions and stronger powers for the Small Business Commissioner.[3][4]

The Government estimates that late payments cost the UK economy around £11 billion each year.[4]

Committee stage was completed on 21 July 2026, and Report stage was completed on 15 September 2026. The current version is HL Bill 55, as amended on Report. Third Reading in the House of Lords is currently scheduled for 20 October 2026.[1][2][3]

The wording can still change before the Bill completes its passage through Parliament.

The core late-payment measures are intended to apply to UK-to-UK business transactions rather than international trade.[5]

What This Means for You

1. A maximum payment period

Under the Bill as it currently stands, a commercial contract covered by the new rules would generally have to provide for payment within a maximum period of:

• 30 days where the purchaser is a public authority

• 60 days where the purchaser is not a public authority.[3]

There are proposed exemptions and powers to create further exemptions for particular types of contract.

The Bill as amended on Report also gives the Secretary of State power to shorten these maximum payment periods by regulations in future. The proposed limits could be reduced, but not increased above 30 days for public-authority payments or 60 days for other covered payments.[3]

If a covered contract does not contain a compliant payment term or contains a payment term made void by the new rules, a 30-day payment period would generally be implied instead.[3]

This would be a significant change from the current private-sector rules, where payment periods longer than 60 days can still be agreed if they are expressly agreed and are not grossly unfair to the supplier.[6]

2. Statutory interest would become mandatory

The Bill would strengthen the existing rules on statutory interest for qualifying late commercial debts.

Under the proposed regime, a contractual term that tries to exclude or vary the right to statutory interest would generally be void.[3]

The proposed statutory rate remains 8 percentage points above the Bank of England base rate.[4]

This is important because under the current regime a contract can provide a different interest rate instead of the statutory rate.[7]

3. Payment disputes would have to be raised promptly

The Bill would introduce new consequences where a purchaser raises a payment dispute too late or fails to provide enough information about the dispute within the required period.[3]

For contracts covered by these provisions, the supplier could become entitled to a fixed sum where the purchaser does not raise the dispute properly and in time.

Under the current Bill, that fixed sum would be the higher of

• £40

• 1% of the contract price, or 1% of the disputed amount where only part of the price is disputed.[3]

The Bill also provides for circumstances where that amount could be reduced where the interests of justice require it.

4. The Small Business Commissioner would get stronger powers

The Bill would significantly expand the role of the Small Business Commissioner.

The proposed powers include investigating larger businesses suspected of persistent poor payment practices, issuing directions and taking enforcement action where appropriate.[3][4]

The Commissioner would also operate a new adjudication scheme for certain contractual payment disputes involving money owed by a larger business to a small business.[3]

An adjudication decision would generally be binding unless and until the dispute is finally determined through legal proceedings, arbitration or a different written agreement between the parties.[3]

The Bill also provides for financial penalties in connection with certain breaches. Some penalties could be calculated by reference to a business's UK turnover, with the Bill providing for maximum penalties of up to 1% of annual UK turnover in specified circumstances.[3]

5. Construction retentions would be phased out

The Bill would prohibit retention clauses in construction contracts.

A retention is money withheld from payment until particular conditions have been satisfied, often relating to completion or defects.

The ban would not take effect immediately. The current Bill provides for a two-year transition period before newly agreed retention clauses become void.[3]

There are also transitional rules dealing with retention arrangements entered into before or during that period.

6. The changes would not operate retrospectively

The Government has said the reforms will not be applied retrospectively.[4]

Payments, contracts and disputes will instead be judged according to the rules in force at the relevant time.

The Government also intends to provide an appropriate lead-in period before the substantive reforms come into force.[4]

7. You already have late-payment rights today

You do not need to wait for this Bill to chase an overdue commercial invoice.

Under the current rules, businesses can already have a statutory right to charge interest on qualifying late commercial debts.

The statutory rate is currently 8 percentage points above the Bank of England base rate.[7]

Fixed debt recovery compensation may also be available. The current fixed amounts are

• £40 for debts up to £999.99

• £70 for debts from £1,000 to £9,999.99

• £100 for debts of £10,000 or more.[8

Under the current regime, statutory interest may not apply where the contract provides a different contractual interest rate.[7]

The Bill would strengthen this position by preventing contractual terms from excluding or varying the proposed statutory interest right.[3]

What Happens Next

The Bill received its first reading in the House of Lords on 19 May 2026 and its second reading on 9 June 2026.

Committee stage was completed on 21 July 2026, and Report stage was completed on 15 September 2026.[1]

The next stage is Third Reading in the House of Lords, currently scheduled for 20 October 2026. Parliamentary schedules can change.[2]

After Third Reading, the Bill would still need to pass through the required stages in the House of Commons.

If both Houses agree the final text, the Bill can receive Royal Assent.

Most of the substantive provisions would then come into force on dates appointed under the Bill rather than all taking effect automatically on Royal Assent.[3]

The Government has said businesses will be given an appropriate lead-in period.[4]

Until that process is complete, these are proposed reforms rather than current law.

Our Conclusion

The Commercial Payments Bill could make a significant difference to freelancers, agencies and other small suppliers.

The proposed rules would limit payment periods, strengthen statutory late-payment interest, introduce consequences for late payment disputes and give the Small Business Commissioner much stronger enforcement powers.

But those rules do not apply yet.

If an invoice is overdue today, use the rights that already exist rather than waiting for the Bill to become law.

Sources

[1] UK Parliament, Commercial Payments Bill [HL]: Bill stages and publications

[2] UK Parliament, Commercial Payments Bill [HL]: Bill stages

[3] UK Parliament, Commercial Payments Bill [HL], HL Bill 55 as amended on Report

[4] GOV.UK, Commercial Payments Bill: overview

[5] House of Lords Library, Commercial Payments Bill [HL] briefing

[6] GOV.UK, Late payment common framework

[7] GOV.UK, Interest on late commercial payments

[8] GOV.UK, Claim debt recovery costs on late payments