The Commercial Payments Bill is the government’s attempt to tackle late payment in business-to-business trade. It was introduced to Parliament in May 2026 and, according to GOV.UK, caps most payment terms at 60 days, makes statutory late-payment interest mandatory, and strengthens the enforcement powers of the Small Business Commissioner. For recruitment agencies, it is welcome news, but it is not a complete fix for the cash flow gap between weekly contractor payroll and client payment.
What is the Commercial Payments Bill?
The Commercial Payments Bill is legislation introduced to Parliament in May 2026 that sets maximum business-to-business payment terms, makes statutory late-payment interest mandatory, and gives the Small Business Commissioner new powers to investigate and penalise persistent late payers. It is not yet law in force.
According to the GOV.UK Commercial Payments Bill overview, there are three main pillars:
- A cap on most business-to-business payment terms at 60 days, with strictly limited exemptions.
- Mandatory statutory late-payment interest at 8% above the Bank of England base rate.
- New powers for the Small Business Commissioner to investigate persistent late payment by larger businesses, adjudicate payment disputes between small and larger businesses, issue directions and impose financial penalties.
The scope covers most purchasers, with a 30-day limit for public authorities, according to Napthens’ guide to the Bill. The government consulted on the detail between 31 July and 23 October 2025, received 867 responses and published its response on 24 March 2026, according to GOV.UK. The Bill was introduced on 19 May 2026 and is still progressing through Parliament.
What the 60-day cap actually says
Most business-to-business contracts will be capped at 60 days, and longer terms are void and replaced with a 30-day default. That default is the important part: a client cannot simply write a 90-day term into a contract and rely on it.
Two points are not yet settled, and agency owners should watch them closely.
- The limit may later be reduced to 45 days, subject to consultation, according to Napthens. That has not been decided.
- Exemptions under consideration include contracts between large businesses and cases where the purchaser is smaller than the supplier, again according to Napthens. The final list matters for agencies that place senior contractors with smaller client businesses.
Do not redraft your terms of business on the strength of the Bill alone. Check the final Act and the commencement regulations before you change anything contractual, and take professional advice where the position is unclear.
Late payment interest and dispute costs
Statutory interest at 8% above the Bank of England base rate becomes mandatory and cannot be contracted out of. That changes the conversation with slow-paying clients. A term that tries to exclude statutory interest is unlikely to hold.
The Bill also addresses a familiar tactic: a client disputing an invoice late or without enough information to resolve it. According to Napthens, a supplier may recover a fixed sum of £40 or 1% of the amount claimed, whichever is higher, when a dispute is raised late or without sufficient information.
Enforcement gets sharper too. The Small Business Commissioner gains powers to investigate, adjudicate and issue directions, with financial penalties of up to 1% of annual UK turnover for persistent poor payment practices, according to Napthens. According to GOV.UK, boards of persistently late-paying large companies must also publish commentary on their payment performance. That reputational pressure can be as useful to an agency as the interest itself.
When will it apply?
Not before 2027 at the earliest, following a lead-in and transition period, and the measures are not retrospective. Existing contracts and current late payment behaviour are not caught automatically.
Treat 2026 and 2027 as a preparation window, not a reason to wait. The agencies that benefit most will be the ones whose terms, invoicing and credit control are already clean when the new rules bite. Check commencement dates and transition detail against the final Act rather than relying on commentary, including this article.
Why the Bill helps agencies but does not solve the cash gap
A 60-day cap shortens the worst waits, but weekly contractor payroll against a 60-day client term still leaves a gap of around two months. The Bill reduces the outer limit; it does not change the shape of a recruitment agency’s cash cycle.
Think through a simple illustration. You pay your contractors weekly, in line with the Conduct Regulations and your own commitments. Your client now has 60 days to pay, and may use much of that. That means roughly two months of payroll goes out before the matching client cash comes in, on every placement, all year. For a growing agency, the gap grows with the business.
Mandatory interest compensates you for late payment, but it does not fund payroll before the invoice is paid. And credit risk remains: a slower or failing client still affects you even under a capped term. A cap on days does not guarantee the money arrives, which is why client credit checks and bad debt protection belong in the same conversation as payment terms.
What recruitment agencies should do now
Review standard terms, dispute processes and credit control now, because the Bill will change what terms are enforceable. Four practical steps:
- Audit client contracts for terms over 60 days and for any attempt to contract out of statutory interest. Flag anything that looks non-compliant once the Act is in force.
- Tighten dispute handling so invoices are not held up by late or incomplete dispute notices. Keep a clear record of when a dispute was raised and what information was provided.
- Review credit control, including reminder cycles, escalation points and who owns the conversation when an invoice slips past its due date.
- Model the funding requirement on a 60-day assumption as well as on your current terms, and decide how to cover the residual gap.
Finance directors should also check whether any client is likely to fall within an exemption under consideration, such as a purchaser that is smaller than the supplier. If so, the cap may not apply in the way you expect, and your terms need to reflect that.
How funding fits alongside the legislation
Funding covers the timing gap between paying contractors and being paid by clients, whatever the statutory cap is. The Bill addresses the outer limit on payment terms; funding addresses the timing gap inside it.
If your clients move to 60 days, invoice finance and invoice factoring let you release cash against approved invoices rather than waiting for the capped term to run. Invoice discounting gives you a similar release of cash while you keep running your own credit control, which many agencies prefer as they grow. For agencies that want invoicing, payroll funding and back office in one place, a funding and back-office platform can reduce the admin load at the same time.
Be clear on the relationship between the two. Funding is not a substitute for the Bill, and the Bill is not a substitute for funding. The legislation should make the worst waits shorter and costlier for clients. It will not put money in your account on the day you run payroll.
The bottom line for agency owners
The Bill should reduce the longest waits and make late payment costlier for clients, but agencies still need a plan for the weeks between payroll and payment. The action list is straightforward: review terms, tighten disputes, sharpen credit control and model funding on a 60-day assumption. Do that this year, while the transition period is still ahead of you.
Frequently asked questions
What is the Commercial Payments Bill?
It is a Bill introduced to Parliament in May 2026 that caps most business-to-business payment terms at 60 days, makes statutory late-payment interest mandatory and gives the Small Business Commissioner stronger powers to investigate and penalise persistent late payment.
When will the 60-day payment terms apply?
Not before 2027 at the earliest. The measures apply after a lead-in and transition period and are not retrospective, so existing contracts are not caught automatically.
Does the Bill apply to recruitment agencies?
The Bill applies to business-to-business payment terms generally, so agency invoices to client businesses fall within its scope, subject to the exemptions and the final Act. Agency payments to contractors and workers are a separate matter.
Will the Bill close the gap between weekly payroll and client payment?
No. It shortens the maximum wait and penalises late payment, but a 60-day cap still leaves roughly two months between paying contractors weekly and being paid by clients, so a funding need can remain.
Can clients contract out of the late-payment interest?
No. The source describes statutory interest at 8% above base rate as mandatory and not capable of being contracted out of.
What should agencies do before it comes into force?
Review standard terms for anything over 60 days, tighten dispute processes, review credit control and model funding needs on a 60-day assumption.
Review your client terms and model your cash position on a 60-day assumption, then speak to Sonovate about funding that covers the gap between contractor payroll and client payment.