Getting paid, 29 October 2026
What does the late payment bill mean for subcontractors?
The Commercial Payments Bill, introduced in the House of Lords on 19 May 2026, would cap payment terms at 60 days when large businesses pay smaller suppliers, make late payment interest at 8% above base rate compulsory, give the Small Business Commissioner powers to investigate and fine, and ban retentions in construction contracts after a two-year transition. It is not law yet.
Where has the bill got to?
The government introduced the bill on 19 May 2026, calling it the largest crackdown on late payments in over 25 years. It started in the House of Lords, had its second reading there in June 2026, and the Small Business Commissioner's guidance, updated on 23 October 2026, says it has reached third reading in the Lords.
After the Lords, it goes to the House of Commons, then Royal Assent. Many measures will also need commencement regulations and, for some details, secondary legislation the government has said it will consult on. No commencement dates have been published. Treat everything below as proposed, and check the Small Business Commissioner's page before relying on a date.
What would change, and what's the law today?
The bill builds on the Late Payment of Commercial Debts (Interest) Act 1998 rather than replacing the construction payment rules. Here's each measure next to the position now.
| Topic | Today | Proposed in the bill |
|---|---|---|
| Payment terms | Up to 60 days for business deals, longer if agreed and fair | Maximum 60 days when large firms pay smaller suppliers, with limited exemptions; terms over the limit void |
| Late payment interest | 8% plus base rate, unless the contract sets a different rate | 8% above base rate compulsory |
| Disputing invoices | No set time limit | A time limit for raising disputes, with a fixed sum payable for late or vague disputes |
| Retentions in construction | Allowed if the contract says so | Retention clauses banned, after a two-year transition |
| Enforcement | Court claim or adjudication by you | Small Business Commissioner can investigate, adjudicate and fine persistent late payers |
| Large company reporting | No duty on boards to explain poor payment performance | Boards or audit committees of persistent late payers must publish why and what they're doing about it |
The 60-day cap is aimed at large businesses paying smaller ones. The government's second reading speech said it wouldn't cover large-to-large contracts or cases where the buyer is the smaller party. So a 6-person electrical firm being paid by a tier 1 contractor is the case it targets; a homeowner paying you is not.
What is late payment interest worth today?
You don't have to wait for the bill. If a business customer pays late and your contract doesn't set its own interest rate, you can already charge statutory interest and a fixed sum for recovery costs.
A £12,000 invoice paid 45 days late
A groundworks subcontractor's invoice, no interest clause in the subcontract, paid 45 days after it fell due. Bank of England base rate 3.75% (October 2026).
| Statutory interest rate8% + 3.75% | 11.75% a year |
| Daily interest£12,000 × 11.75% ÷ 365 | £3.86 |
| Interest for 45 days£3.86… × 45 | £173.84 |
| Fixed compensationdebt of £10,000 or more | £100.00 |
| You can claim | £273.84 |
Claiming it is optional today, and many firms let it go to keep a customer. The bill's change is that interest would no longer be optional for the payer. For how to word a claim now, see late payment interest.
What would the retentions ban mean for you?
A retention is money your client holds back from each payment, usually a few percent, until completion and the end of a defects period. On a £48,000 package at 3%, that's £1,440 of your money sitting in someone else's account for the length of the job and the defects period after it. If the main contractor becomes insolvent in that time, you can lose it, which is one of the reasons the Small Business Commissioner gives for the ban.
The bill bans retention clauses in construction contracts. The government said a two-year transition will apply before the ban comes fully into force, to give clients time to adapt and alternative security products time to develop. Expect clients to ask for something else in its place, such as a bond or insurance, and price that cost in when it arrives. Our guide to retentions covers how to get yours back under today's rules.
For a small firm that already lives month to month, money held back is the difference between paying wages on time and not. That's the cash the bill is aimed at.
What should you do now?
Nothing in the bill changes your contracts until it's law and in force. The useful work is getting the basics right, which also positions you well when it arrives.
The Construction Act already gives you payment notices, pay less notices and the right to suspend for non-payment. Our guide to applications for payment shows how those dates work on a real valuation, and main contractor payment terms covers what to accept when you sign.
Where Nexley fits
Nexley is the AI back office for UK trade firms: five AI assistants run your tenders, quotes, buying, scheduling and invoicing. It connects to the tools you already work in, you run it all from WhatsApp, and you approve everything. £799 a month.
Nexley tracks every invoice, application and retention against its due date, chases politely when one slips, and can work out statutory interest and compensation for you to send if a payer is persistently late. Nothing goes to a customer until you approve it on WhatsApp. When the bill's rules come into force, you tell Nexley once and it applies them.
Common questions
When will the Commercial Payments Bill become law?
No date has been set. As of late October 2026 it has reached third reading in the House of Lords and still needs to pass the Commons. Commencement dates for each measure will follow.
Will the 60-day limit apply to domestic customers?
The bill is about commercial contracts, and the government said the cap targets large businesses paying smaller suppliers. A homeowner paying for work on their house isn't a business transaction under the late payment rules.
Does the retentions ban mean I get my old retentions back?
The bill would ban retention clauses after a two-year transition. How existing contracts are treated depends on the final wording and commencement rules, which aren't published yet. Keep chasing retentions under your current contracts.
Can I charge late payment interest now?
Yes, on business-to-business invoices, at 8% plus the Bank of England base rate, unless your contract sets a different rate. You can add the fixed compensation of £40, £70 or £100 depending on the debt. For anything contested, get advice from a solicitor.
Sources
- GOV.UK: Largest crackdown on late payments in over 25 years as landmark bill enters Parliament
- Small Business Commissioner: Late Payments Bill, what it could mean for your business
- Small Business Commissioner: Late Payments Bill introduced to Parliament
- Small Business Commissioner: Second reading opening speech
- GOV.UK: When a commercial payment becomes late
- GOV.UK: Interest on late commercial payments
- GOV.UK: Claim debt recovery costs on late payments
- Bank of England: Bank Rate
Every rule, rate and date above was checked against these sources on the date shown at the top.
Topic: Getting paid
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