Late payment is more than an accounting problem. For businesses, unpaid invoices can affect cash flow, supplier payments and day-to-day operations.
In 2026, UK businesses also have another reason to review their commercial contracts. The Government has introduced the Commercial Payments Bill, which proposes significant changes to payment terms, late-payment interest, invoice disputes and construction retentions.
The Bill is not yet law. As of October 2026, it is progressing through Parliament, so businesses should distinguish between the late-payment rules currently in force and the proposed changes that may apply in the future.
However, an important distinction should be made: the proposed reforms are not yet law. The Bill is still progressing through Parliament.
So, what should businesses be reviewing in their contracts?
What is the current UK law on late payments?
The existing framework is principally based on the Late Payment of Commercial Debts (Interest) Act 1998.
For qualifying commercial transactions, businesses can generally claim statutory interest when a payment is late. The statutory rate is 8% above the Bank of England base rate. Businesses may also be entitled to fixed compensation for the cost of recovering a late commercial payment.
Payment periods also matter. GOV.UK explains that businesses can generally agree payment periods of up to 60 days, while longer periods may be possible where they are not grossly unfair to the supplier.
The position is therefore more nuanced than simply saying that every UK business invoice must currently be paid within 60 days.
What does the Commercial Payments Bill propose?
The Commercial Payments Bill, introduced in May 2026, proposes significant changes to commercial payment practices.
Among other things, the proposed reforms would introduce a 60-day maximum payment term for specified commercial contracts, strengthen provisions concerning late-payment interest, address certain late or inadequate payment disputes, and introduce restrictions concerning retention payments in construction contracts.
As of October 2026, the Bill has not become law. It has progressed through Parliament and is scheduled for further consideration in the House of Lords.
Businesses should therefore distinguish between current legal obligations and proposed future requirements.
Contract clauses businesses should review
1. Payment terms
The contract should clearly establish when payment becomes due.
This might be a specified number of days after an invoice, delivery, completion of a milestone or another defined event.
Businesses should be particularly careful with wording that makes payment dependent on an uncertain or open-ended acceptance process.
2. Late-payment interest
Check whether the agreement deals with interest on overdue invoices and whether it contains a contractual interest rate.
This is important because contractual provisions can affect the availability of statutory interest under the existing regime.
3. Invoice disputes
The contract should explain how a customer must challenge an invoice.
For example, it could require the customer to identify the disputed amount and reasons for the dispute within a specified period.
This can prevent an entire invoice from being withheld when only part of it is genuinely disputed.
The proposed reforms also address certain situations involving late payment disputes.
4. Acceptance and verification
Software, technology, construction and professional-services contracts often make payment conditional on acceptance or verification.
The contract should explain what constitutes acceptance, who performs the verification and how quickly it must happen.
Otherwise, an unclear acceptance mechanism can effectively delay the payment date.
5. Suspension for non-payment
Suppliers should consider whether they can suspend further services when invoices remain unpaid.
The contract should ideally specify when suspension is permitted, whether notice is required and whether the customer has a period to remedy the default.
6. Termination for non-payment
Persistent non-payment may eventually justify termination.
A contract should therefore establish the circumstances in which non-payment becomes a termination event, together with any notice and cure requirements.
7. Limitation of liability
Although a liability clause is not itself a payment clause, it can become important during a payment dispute.
Businesses should check whether liability caps clearly deal with unpaid fees, interest, indemnities and other specified obligations rather than leaving the position ambiguous.
8. Dispute resolution
Contracts should provide a practical mechanism for dealing with payment disputes.
Depending on the relationship, this could involve escalation, negotiation, mediation, arbitration or court proceedings.
A clear process can prevent an ordinary invoice disagreement from immediately becoming a larger commercial dispute.
9. Governing law and jurisdiction
Cross-border contracts should clearly establish which law governs the agreement and where disputes can be brought.
This becomes particularly important when a business needs to recover an unpaid invoice from an overseas customer.
What should businesses do now?
The proposed 2026 reforms should not be treated as current law until they come into force.
Nevertheless, businesses can use the proposed changes as an opportunity to review their existing agreements.
In particular, check:
- payment periods;
- invoice requirements;
- acceptance procedures;
- late-payment interest;
- invoice disputes;
- suspension rights;
- termination provisions;
- liability caps;
- dispute-resolution clauses.
A payment problem often becomes a legal dispute because the underlying contract was unclear in the first place.
Businesses entering into or reviewing significant commercial agreements must consult contract lawyers in London to assess payment provisions alongside the wider allocation of contractual risk.
Frequently Asked Questions
What is the late-payment interest rate in the UK?
For qualifying commercial debts, statutory interest is generally 8% above the Bank of England base rate under the existing regime.
Is the 60-day payment limit already UK law?
Not in the form proposed by the Commercial Payments Bill. The existing regime has rules concerning payment periods, while the Bill proposes a more defined 60-day maximum for specified contracts.
Is the Commercial Payments Bill already law?
No. As of October 2026, it remains a Bill progressing through Parliament.
Should businesses review their contracts now?
Yes. Even without assuming that proposed reforms will become law in their current form, reviewing payment terms, interest, dispute procedures, suspension and termination rights can help businesses identify contractual weaknesses before a payment dispute arises.
