Proposed legislation to strengthen rules on late commercial payments has completed its passage through the House of Lords and moved to the Commons, bringing potential changes for businesses and construction contractors another step closer to parliamentary approval.
The Commercial Payments Bill received its third reading in the Lords on 20 October, with Parliament confirming the result the following day. No substantive amendments were proposed ahead of that stage, although a parliamentary privilege amendment was made before the Bill was passed.
Its proposed measures include stronger approaches to late commercial payments, restrictions on retention clauses in construction contracts and additional powers for the Small Business Commissioner. The Bill has not received Royal Assent, and the latest parliamentary milestone does not mean its new provisions are already in force.
Late payment creates particular difficulties for suppliers that have met the cost of wages, materials and equipment before customers settle invoices. A company can report sales and accounting profits while still struggling to meet obligations because receivables are paid after the expected date.
Smaller suppliers may be especially exposed where they rely on a small number of large customers. Challenging an important purchaser over payment can put a commercial relationship at risk, while short-term borrowing to cover delayed receipts creates additional expenditure that may not have been reflected in the original contract price.
Construction retentions present a related but distinct issue. Under some contracts, customers withhold a portion of payments as security against incomplete work or defects. The practice can leave subcontractors with money outstanding after they have delivered the work and incurred most of the costs involved.
The Bill’s proposal to ban retention clauses in the sector would alter how parties allocate those risks. Purchasers would need to assess other mechanisms to protect against incomplete performance, while contractors may gain greater access to cash earned under their contracts. The final scope will depend on the legislation approved after Commons examination.
The Small Business Commissioner already provides assistance with payment disputes. Expanded powers would potentially change how complaints are investigated and resolved, but companies should not assume that every disputed invoice would immediately become subject to a new penalty or statutory procedure.
Distinguishing legitimate commercial disputes from unjustified delays is important. Customers need to examine whether goods and services meet agreed specifications, while suppliers require certainty that accepted invoices will be settled on time. Clear documentation and prompt handling of disputes will remain relevant under any revised regime.
Purchasing organisations could need to review contract templates, invoice approval systems and relationships with intermediaries if the Bill becomes law. Automated payment systems may help reduce administrative delays, but businesses must still maintain appropriate controls against error and fraud.
The House of Lords has examined issues including payment periods, enforcement and how proposed restrictions should apply across different commercial arrangements. Those debates indicate the complexity of setting rules that cover both ordinary supplier invoices and long-running contracts involving staged payments.
Parliamentary progress will also involve consideration of the Bill’s application in devolved areas where legislative consent arrangements may be relevant. Timing and commencement provisions could affect when any future obligations take effect, making it important to distinguish a policy proposal from an operative statutory duty.
There is also a cost implication for businesses that finance the gap between paying their suppliers and collecting from customers. Interest on short-term borrowing, credit checks and additional credit control work can reduce the return on otherwise profitable contracts. Measures that shorten payment delays could relieve some of that burden, although effects will depend on enforcement and contract practices. The legislation’s progression through the Commons therefore matters to both the businesses issuing invoices and those responsible for approving them.
The measure now moves to the Commons for further scrutiny and possible amendment. Businesses remain subject to existing contractual and legal requirements until any replacement or additional provisions are formally brought into force.
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