The Commercial Payments Bill cleared report stage in the House of Lords on 15 September 2026 with its central measure intact: a statutory 60-day cap on payment terms for most business-to-business contracts. Peers had the chance to tighten that limit to 30 days, matching the public sector, but did not do so. For the estimated 40,000-plus UK businesses that already use invoice finance to bridge the gap between issuing an invoice and being paid, the outcome confirms that the cash-flow problem the industry exists to solve is not about to disappear.

What the Bill actually does

The Commercial Payments Bill [HL] was introduced in the House of Lords on 19 May 2026, following a commitment in the 2026 King’s Speech to legislate against late payment. It had an unopposed second reading on 9 June, completed committee stage on 21 July with 30 mostly technical government amendments, and returned for report stage on 15 September.

As drafted, the Bill would:

• Cap payment terms in most commercial contracts at 60 days, with anything longer void and a 30-day term implied in its place; the limit for public sector contracts remains 30 days.
• Impose mandatory statutory interest on late payments at 8 percentage points above the Bank of England base rate.
• Give the Small Business Commissioner stronger investigative and enforcement powers.
• Require purchasers to raise invoice disputes with sufficient detail at least eight days before payment falls due, or lose the right to rely on that dispute.
• Allow financial penalties of up to 1% of a non-compliant business’s annual UK turnover.

The government has described it as the biggest crackdown on late payment in more than 25 years. Ministers cite evidence put to Parliament that around 44% of invoices issued by UK SMEs are paid late, at an estimated cost to the economy of £11 billion a year. Subject to further Lords and Commons stages, the new rules would apply from April 2027 at the earliest — 18 months or more away.

The 30-day amendment that didn’t happen

At committee stage, peers considered amendments that would have cut the private-sector cap to 30 days and strengthened enforcement further, but rejected them, keeping 60 days as the working limit. Report stage on 15 September did not revisit that threshold. That matters for anyone weighing up whether to plan around the current payment landscape or a tighter future one: the Bill in its current form leaves the standard payment gap SMEs must fund at up to two months, not one.

Why the funding gap doesn’t close, even once the law is in force

The Bill regulates how long a customer is allowed to take to pay, and adds a financial penalty — interest at roughly 11.75% a year at today’s 3.75% Bank Rate — if they take longer. It does not accelerate the point at which a supplier actually receives cleared funds. A business owed £100,000 on 60-day terms still has to fund staff, stock and overheads for those two months, whether or not the law technically permits the delay.

That is the core reason invoice finance, invoice discounting and asset finance exist as distinct products from a straightforward business loan: they convert value that is already owed, or assets already owned, into working capital now rather than in 60 days’ time. Nothing in the Bill changes that arithmetic. If anything, a statutory 8%-above-Bank-Rate late payment charge gives suppliers a stronger negotiating position, but few SMEs will want to invoice a key customer for the interest and risk the relationship — in practice, many will keep using invoice finance or discounting to manage the gap rather than relying on enforcement.

There is also a timing mismatch worth planning around. With implementation not expected before April 2027, and Commons stages still to come, SMEs currently struggling with 60-, 90- or longer payment terms will not see any statutory relief this year or next. Cash-flow finance decisions being made now should not assume the Bill has already changed customer behaviour.

What this means alongside the wider lending picture

The Bill’s progress lands against a backdrop where credit supply to SMEs is technically rising but remains selective, and where the Bank of England has held Bank Rate at 3.75%, keeping the cost of invoice finance facilities — typically priced as a margin over base rate — broadly stable for now. Separate data shows overdraft use among SMEs has been rising, one sign that firms are already leaning on short-term facilities to cover exactly the kind of timing gap the Commercial Payments Bill addresses only partially.

For businesses that have not previously compared invoice finance rates against overdraft or short-term loan costs, the combination of a slow-moving legislative timetable and a stable but non-trivial base rate makes this a reasonable point to review which facility is actually cheapest for bridging payment terms, rather than waiting for a law that will not bite for well over a year, if it clears the Commons unamended at all.

What happens next

The Bill still needs third reading in the Lords before moving to the House of Commons, where it can be amended again. Businesses in construction, manufacturing, wholesale and other sectors with long payment chains should treat the current 60-day, 8%-above-base-rate framework as a working assumption rather than settled law, and revisit their cash-flow finance arrangements once Commons stages clarify whether that framework survives intact.

Frequently asked questions

When will the 60-day payment cap take effect?
Not before April 2027, and only once the Bill completes its remaining Lords and Commons stages and receives Royal Assent.

Does the Bill mean businesses no longer need invoice finance?
No. The Bill regulates how long customers may legally take to pay; it does not provide upfront cash. Invoice finance, discounting and asset finance remain ways to access funds tied up in unpaid invoices or owned assets before the customer’s payment term ends.

What interest rate applies to late payments under the Bill?
As drafted, statutory interest of 8 percentage points above the Bank of England base rate — currently around 11.75% a year based on the 3.75% base rate.

This article is for general information only and does not constitute financial or legal advice. Businesses should seek independent advice before making funding decisions or relying on the Commercial Payments Bill’s provisions, which remain subject to change before Royal Assent.