Late payment bill raises supplier pressure

The UK government’s late payment reforms would give suppliers stronger protection against delayed invoices, disputed bills, and withheld construction retentions, putting payment practice under heavier statutory scrutiny.

The Commercial Payments Bill is intended to restrict poor payment behaviour in commercial contracts, strengthen the statutory right to interest on overdue invoices, and expand the enforcement powers of the Small Business Commissioner.

Late payment remains one of the most persistent pressures on smaller suppliers. The government has estimated that delayed settlement costs the UK economy £11bn a year and is associated with 38 business closures every day. The House of Lords Library has separately said late payments to small businesses are estimated to affect 44% of invoices.

Under the bill, most commercial contracts would be subject to a maximum payment term of 60 days, with limited exemptions. Contractual terms that breach the rules would be void, and ministers intend to consult on secondary legislation exempting some import and export contracts from maximum payment terms.

Statutory interest would also be strengthened. Suppliers already have a right to charge interest on late commercial debts, but the provision is often difficult to enforce where the buyer is a large customer with greater bargaining power. The bill would prevent contracts from substituting weaker remedies in place of statutory interest at 8% above the Bank of England base rate.

Another measure would give suppliers a right to recover a fixed sum where a purchaser raises a dispute late or without sufficient information. That provision targets cases in which objections are raised near a payment deadline, delaying settlement even when the dispute is weak, unclear, or incomplete.

The Small Business Commissioner would gain powers to resolve contractual payment disputes through a confidential adjudication scheme outside the court process. The commissioner would also be able to investigate persistent poor payment practice by larger businesses, compel participation in investigations, issue recommendations, give publication and enforcement directions, and impose financial penalties in serious cases.

Construction is one of the bill’s most exposed sectors. The legislation would ban retention clauses in construction contracts and introduce a fixed sum payable for unauthorised deductions from retention payments. Retentions have long been controversial because subcontractors can wait months, and sometimes years, for money linked to work, labour, and materials already delivered.

The Construction Leadership Council estimates that around £223m in retention payments is lost each year because of insolvency, while £4bn to £6bn in retentions is held across the industry at any given time. That represents a large amount of working capital sitting outside the businesses that earned it.

The reform package comes as cash management has become more difficult across supply networks. Higher wage bills, tax pressure, financing costs, and volatile input prices have made payment timing more consequential. A profitable order can still create a liquidity problem when invoices are paid after wages, rent, insurance, VAT, and supplier bills fall due.

Delayed payment also changes the economics of procurement. A large buyer that stretches settlement terms effectively receives working capital support from its suppliers. Smaller companies then carry the cost through overdrafts, invoice finance, deferred investment, or reduced hiring. Capital that could have gone into equipment, skills, inventory, or growth is absorbed by debt collection and short term financing.

Large companies would need to treat payment practice as a governance issue rather than a matter confined to procurement teams. Finance functions would need systems capable of tracking invoice dates, dispute timings, payment cycles, statutory interest exposure, and reporting obligations. Procurement teams would need clearer rules on acceptable terms, dispute escalation, and supplier communication, while legal teams would need to review templates that rely on long payment windows or alternative interest provisions.

Construction groups face a more specific adjustment. Removing retention clauses would alter a common mechanism used to manage performance and defect risk. Larger contractors may respond with tighter due diligence, insurance requirements, performance bonds, milestone checks, or other contractual protections. Subcontractors would gain more certainty over cash, but could face heavier scrutiny before appointment.

The enforcement model will decide how far the reforms alter behaviour. Previous payment rules have struggled where suppliers fear commercial consequences from challenging large customers. Confidential adjudication and stronger commissioner powers are designed to reduce that imbalance, but the credibility of the regime will depend on speed, visibility, and the willingness to act against repeat offenders.

Some large buyers are likely to argue that rigid payment rules reduce commercial flexibility, especially in sectors with thin margins, long inventory cycles, or complex international contracts. Proposed exemptions for some large to large contracts and import export arrangements show that ministers are seeking to avoid an overly broad regime. The practical question is whether those exemptions remain narrow enough to prevent avoidance while still accommodating complex trade.

The bill would give smaller suppliers a stronger statutory position and make prompt payment a more visible test of supply network stewardship. Large organisations that have treated extended terms as a cash management tool may find that practice harder to defend once payment discipline is backed by clearer enforcement powers.