Commercial Payments Bill [HL]

Lord Leong Excerpts

2nd reading
Tuesday 9th June 2026 Lords Chamber

Moved by

[Lord Leong]

That the Bill be now read a second time.

Northern Ireland and Scottish legislative consent sought.

[Lord in Waiting/Government Whip (Lord Leong) (Lab)]

My Lords, at the outset I acknowledge the work of the previous Conservative Government in establishing the Office of the Small Business Commissioner under the Enterprise Act 2016, and in introducing the Reporting on Payment Practices and Performance Regulations, which require large businesses and LLPs to publish payment data twice yearly. Those reforms were important and necessary steps forward.

As most noble Lords know, I am a former business owner, so I know that many businesses across the United Kingdom have benefited from those measures without having to endure lengthy and costly litigation simply to recover money that was already owed to them. But despite those reforms, the culture of persistent late payment remains deeply entrenched in too many parts of our economy. Late payment is not merely an inconvenience; it is a scourge on British business. It costs the UK economy an estimated £11 billion every year. Small business owners spend more than 86 hours each year chasing overdue invoices. Every day, approximately 38 businesses in the United Kingdom close because they run out of cash while waiting to be paid.

Behind every one of those statistics is a founder who took a risk, mortgaged a home, invested savings, employed staff, and worked tirelessly to build a business—only to discover that despite fulfilling their side of the contract, they could not survive because payment did not arrive on time. That is neither fair nor sustainable, and this Government are determined to act.

In July 2025, the Government launched a public consultation to gather views from businesses, trade bodies, representative organisations and stakeholders across the country on how best to tackle poor payment practices and improve payment times. The response was overwhelming. Businesses large and small, across all sectors and regions, made it clear that reform was urgently needed. The measures before your Lordships’ House today are the result of that engagement.

The Bill builds on the foundations laid by previous reforms and delivers on this Government’s manifesto commitment to tackle persistent late payments once and for all. Its purpose is straightforward: to ensure that when goods are supplied or services are delivered, businesses, particularly small and medium-sized enterprises, can be confident they will be paid fairly and on time.

SMEs are not peripheral to our economy; they are the very backbone of it. There are approximately 5.5 million SMEs operating across the United Kingdom. They employ around 60% of the private sector workforce and account for around half of all private sector turnover. Yet too often, they operate in a commercial environment where delayed payment has become normalised and smaller suppliers effectively act as involuntary lenders to larger organisations with greater bargaining power. The Bill seeks to restore balance, fairness and accountability to those commercial relationships.

Part 1 of the Bill introduces a maximum payment term of 60 days in commercial contracts, subject to limited exemptions, and renders contractual terms in breach of those rules void. We have listened carefully to businesses and stakeholders to ensure that these measures are proportionate and workable. Therefore, the Bill includes provisions enabling exemptions for large-to-large business contracts and for circumstances where the purchaser is the smaller party. We also intend to consult on secondary legislation that would exempt contracts relating to imports and exports from maximum payment terms.

This is not an attack on legitimate commercial freedom; it is a measured and proportionate intervention to address situations where freedom of contract exists more in theory than in practice because of unequal bargaining powers. Businesses cannot pay wages, suppliers, VAT, rent or national insurance with invoices that remain unpaid for 90, 120 or even 180 days. Prompt payment should be the norm in a modern economy, not the exception. The Bill also strengthens the existing statutory right to interest on late payment of commercial debts.

At present, many suppliers are reluctant to enforce those rights because they fear damaging valuable commercial relationships. Consequently, the law often exists only on paper. The Bill will remove the ability for contracts to substitute weaker remedies in place of a statutory interest at 8% above the Bank of England base rate. That will create a stronger deterrent against late payments and reinforce the principle that delaying payments should carry consequences. The Bill further allows suppliers to recover a fixed sum where disputes are raised late or without sufficient information in an attempt to delay payment. Too many businesses have encountered situations where objections are raised at the eleventh hour, not because there is a genuine dispute but because delaying payment benefits the purchaser’s cash flow. That practice is unfair, damaging and totally unacceptable.

Legislation is meaningful only if it can be enforced effectively. That is why the Bill will significantly strengthen the powers of the Small Business Commissioner. The commissioner will be empowered to resolve contractual payment disputes through a confidential adjudication scheme operating outside the court process, enabling small businesses to recover money owed to them quickly and efficiently. The commissioner will also gain powers to investigate persistent poor payment practices by larger businesses, to compel participation in investigations, to issue recommendations, to give publication and enforcement directions, and, in the most serious cases, to impose financial penalties. The Bill will allow regulations to be made to empower the commissioner to enforce compliance with payment reporting obligations when businesses fail to publish accurate payment data. Taken together, these reforms will transform the Small Business Commissioner from a passive observer into an active champion of fair payment practices across the United Kingdom economy.

The Bill also addresses one of the most controversial and damaging practices in the construction sector: cash retentions. Retention payments represent labour and materials already delivered and installed on site. Yet subcontractors and smaller firms frequently wait months, sometimes years, for money that is rightfully theirs. In some cases, they never recover it because of insolvency higher up the supply chain. The Construction Leadership Council estimates that approximately £223 million in retention payments is lost annually due to insolvency, while around £4 billion to £6 billion in retentions is held across the industry at any given time. That is an extraordinary amount of capital being withheld from productive businesses. Therefore, the Bill bans retention clauses in construction contracts and introduces a fixed sum payable for any unauthorised deduction from a retention payment.

A two-year transition period will apply before the ban comes fully into force, allowing industry and clients time to adapt and enabling alternative surety products to develop in the market. This is an important reform that will improve cash flow, strengthen resilience and reduce insolvency risks throughout the construction supply chain.

There is a broader economic case for this legislation. Growth does not come solely from major infrastructure projects or multinational investment; growth also comes from healthy cash flow in ordinary businesses across every town, city and region of our country. When small businesses are paid on time, they invest with greater confidence, recruit more staff, train apprentices, innovate and grow. Improving payment culture is therefore not simply a contractual issue; it is a growth strategy, a productivity strategy and, fundamentally, a fairness strategy. The Bill strikes the right balance between respecting commercial freedom and intervening where persistent unfairness harms businesses, jobs and economic growth. It is pro-enterprise, pro-growth and pro-fairness.

Poor payment practices destroy businesses, jobs and livelihoods. Too many business owners work day and night, often without paying themselves—as I, for one, know—reinvesting every penny into their businesses, only to find that they run out of cash because larger organisations fail to pay them on time. The Government are on the side of those businesses. We will not accept a business culture where smaller firms bear disproportionate financial risk simply because they lack bargaining power.

I am grateful for the constructive engagement and support received from noble Lords across the House through the all-Peers briefing sessions and discussions with Front Benches. I look forward to working collaboratively with noble Lords during the passage of the Bill. I particularly look forward to hearing the wisdom, expertise and practical experience that your Lordships’ House will bring to this important debate.

The Bill will help to ensure that the United Kingdom remains one of the best places in the world to start, build and grow a business. It will strengthen confidence, improve cash flow, protect jobs and create a fairer commercial environment for millions of businesses across our country. Businesses that do the work deserve to be paid on time. That is the simple and fair principle at the heart of the Bill. I beg to move.

--- Later in debate ---

[Lord Leong (Lab)]

My Lords, I thank all noble Lords—especially the noble Baroness, Lady Kramer, who stepped in for the noble Lord, Lord Fox—for an informed, thoughtful and constructive debate and for their kind words about my opening speech. The quality of today’s debate has demonstrated not only the breadth of expertise in your Lordships’ House, but the seriousness with which Members regard the persistent problem of late and unfair payment practices across our country. I will try to respond to as many noble Lords’ questions as possible within my allocated time. If I am unable to address every point raised today, especially some of the technical and more detailed questions, I will ask my officials to review Hansard carefully, write to noble Lords accordingly and place copies of those responses in the Library of the House.

First, there was broad agreement throughout today’s debate on one fundamental principle: businesses that do the work should be paid on time, and that includes social enterprises, as indicated by my noble friend Lady Thornton. The noble Lord, Lord Lansley, again showed the knowledge he brings to the House. He asked whether there should be additional responsibilities on auditors of large companies to sample payments and report on them. The noble Lord, Lord Risby, asked whether some form of register could check on the payment practices of these large companies. As noble Lords know, credit rating agencies exist, and many of them are well known for their credit reports on big companies, although it might be necessary to pay for their services. I will take this idea back to the department and share it with colleagues to see whether it is possible. Obviously, there is the question of how much such a register would cost; nevertheless, I will bring this idea to the attention of my officials.

While the Bill does not impose new duties on auditors, I hope I can reassure noble Lords by saying that in 2025 the Government introduced legislation to require large companies to report on their payment practices in their directors’ reports. Noble Lords will appreciate that there were also some changes to the definition of some of these businesses, and the impact assessment has found in favour that some companies have been moved from medium-sized to small, which basically reduces their reporting requirements as well. That is a good sign. We have to be mindful of the point that the noble Lord, Lord Sharpe, made about the definition of SMEs. I for one have had many conversations with him about that, and it is something that we have to bear in mind. For the purposes of the Bill, we have to define it as it stands, and I will refer to it in another part of my winding up. I confirm that we intend to introduce secondary legislation requiring boards of audit committees of underperforming large companies to explain poor payment performance and outline improvement plans.

Various noble Lords have asked about the number of days and whether it should be 45, 60 or even 30. From our consultation, 60 days seems to strike a fair balance between helping small businesses get paid in a timely manner and recognising that in many sectors 30 or 45 days may have been a step too far at this stage. Take the publishing sector, for example: some smaller publishers would need more than 30 or even 60 days to pay some of the larger publishers, and they have a special arrangement for that. That is provided for within the limited exemptions in the Bill where the purchaser is a much smaller organisation than the larger one.

We will continue our work to encourage businesses to pay even faster. For that matter, there is no reason why businesses cannot pay within 60 days—or 30 or 45—if they offer a discount, which many businesses do. Those practices are currently in place and, as many noble Lords have mentioned, a matter for private commercial negotiation between companies. The maximum is 60 days, but there is no reason why businesses cannot pay faster. Obviously, we will work closely with the Small Business Commissioner, who operates the fair payment code.

The noble and learned Lord, Lord Thomas, asked whether the Bill could apply to foreign or overseas companies. The noble Lord, Lord Risby, also asked a question about that, particularly where UK firms are owed money by companies based abroad. I confirm that the Bill applies to commercial contracts that fall within the scope of UK law, including where a qualifying business is operating in the UK or where the contract is governed by UK law. Subject to consultation, we intend to introduce an exemption from the 60-day maximum payment term for contracts for imports and exports. That is to ensure that UK-based companies trading overseas with non-UK-based companies are not disadvantaged by having to offer much stricter terms. Noble Lords will know that the whole process of import and export requires time after goods arrive in the country for customs clearance and so on, so additional time will be required for some of these payments to be made. Measures in the Bill such as maximum payment terms, statutory interest on late payments and stronger rights to redress will therefore apply where the contractual relationship is within scope.

I turn to the questions from the noble Lord, Lord Leigh. First, on how the Government intend to define the size of a business, I mentioned that earlier in relation to the point from the noble Lord, Lord Sharpe, about the different definitions. For the purposes of the Bill and the exemptions to the maximum payment terms, we intend to define business sizes through secondary legislation following further targeted consultation. For the purposes of the Small Business Commissioner’s new functions, the definition of a small business is included in Section 2(1) of the Enterprise Act 2016.

The Bill provides a revised definition of larger businesses at paragraph 12 of Schedule 4 to the Bill. A small business is a business that has a headcount of fewer than 50 staff, whose registered office or principal place of business is in the UK and that is not a statutory authority. On businesses not using the adjudication scheme due to a conflict with these suppliers, while some small businesses may be reluctant to take action forward against a larger business, that does not mean we should not help businesses that are prepared to take it.

The Small Business Commissioner handled over 700 late payment cases last year, recovering over £1.5 million of late payments for small businesses. This is an alternative dispute resolution scheme designed to support businesses to resolve their disputes in a fair and impartial way. It is a very cost-effective way, rather than going through a costly and lengthy legal process.

On the definition of persistence, I assure the noble Lord that a larger business that persistently engages in poor payment practices is one that engages in poor practices on a sufficient number of occasions for it to represent a pattern of behaviour; it is persistent and regular bad practice. In deciding whether to carry out an investigation, the commissioner will have to consider the extent and impact of suspected poor payment practices, the resources needed to carry out that investigation and whether it is proportionate to do so.

On the point about draft regulations, I assure the noble Lord that there is a statutory duty to consult regarding the regulations, which the Government intend to commence as soon as possible after Royal Assent. The Government will also need to secure the consent of all devolved Governments where relevant, as mentioned by the noble Lord, Lord Bourne. Parliament will have the opportunity to scrutinise the draft legislation and actively approve it before it becomes law.

I turn to the various points mentioned by my noble friend Lord Mendelsohn. I thank him for his engagement with me so far, and I look forward to meeting him next week to discuss his thoughts on the Bill. In our engagement with small businesses on the issue of late payment, the question of cleared funds, where money gets cleared in the bank account, has not been cited as a primary concern. Consequently, we have deliberately avoided prescribing cleared funds in statute as that would introduce rigidity, risk disputes over banking processes beyond a payer’s control and constrain innovation in payment systems and practices. We have to practise what we preach. For comparison, my department, the Department for Business and Trade, currently pays 95% of its invoices within five days and 99% within 30 days, and that is a pretty good record.

On the point about verification, the Bill includes restrictions and makes clear that these must be proportionate and not used to delay payment unnecessarily. Taken together with stronger transparency and enforcement, these measures materially improve suppliers’ position while preserving the flexibility needed for the framework to operate effectively across a modern and evolving economy.

The noble Lord, Lord Sharpe, asked about resources for the Small Business Commissioner. The SBC is required to publish an annual report and audited accounts, which will include details of staffing and resources as well as activity undertaken. The SBC will continue to provide information on its resources. The Government can confirm that the SBC will be provided with the additional resources needed to carry out its new functions.

I turn to the question from the noble Lord, Lord Bourne—several other noble Lords also asked about this—on the time needed to pay and when payment is due. We want businesses to be clear when the payment period begins and ends, helping to provide clarity for businesses about when they get paid. The events listed in new Section 2B(1) are applicable in all contracts related to the supply of goods and services, and form part of the existing statutory framework in relation to late payment. Requiring businesses to use one of the four triggers will help to provide clarity and consistency for businesses about when they will get paid.

In relation to devolution, I can confirm that my officials have had extremely positive conversations with officials within the devolved Governments and the newly elected Governments in Wales and Scotland. The Bill sets out the consent mechanism where powers impact on devolved powers. This respects the devolved settlements and I am confident that the devolved Governments will be able to recommend and grant legislative consent Motions to this Bill.

I turn now to the various points from my noble friend Lady Alexander and thank her for her contributions. With relation to the commissioner having jurisdiction over construction, the Small Business Commissioner will have the power to provide advice, information and training to all businesses, regardless of their sector. This will build on its work within the fair payment code, which includes 212 construction company awardees. The proposed adjudication powers for the Small Business Commissioner will not apply to construction contracts due to the existing statutory dispute resolution mechanisms under the Housing Grants, Construction and Regeneration Act 1996. However, if a construction business enters into a non-construction contract, the commissioner’s adjudication powers would apply.

On the definition of retention, which I think probably all noble Lords have mentioned, we believe that the definition is robust and comprehensive and are confident that it will capture all behaviours amounting to a retention practice. We have also provided the Secretary of State with the power to amend the definition in Clause 16. The power is intended to be used where there is evidence that the ban is being circumvented creatively, defeating the intention of Parliament.

On commitment to monitoring avoidance behaviours, the Government will work with the Construction Leadership Council and construction clients to develop practical approaches to minimising defects, as well as working with the financial services sector to identify ways of developing a surety product it can bring to market for the construction sector, including for small businesses through the supply chain.

Finally, on simplifying the transition arrangements, we recognise that abolishing retentions represents a significant change for the industry and its clients. Therefore, a transition period is required for industry to prepare and for the market in alternative surety products to develop. The requirements in the transition period also seek to address poor payment practices for retentions in the lead-up to the ban. The Government will also support industry implementation through guidance and stakeholder engagement, ensuring that the transition is clear and manageable, particularly for smaller businesses.

The noble Lord, Lord Hunt, and other noble Lords mentioned retention and asked how we can ensure that defects are addressed. Despite the existence of retention for over 100 years, it is clear from our consultations that this is not an effective means of preventing defects or even remediating significant problems. The Government are committed to working with industry and surety providers to improve quality and eliminate defects.

The noble Lord, Lord Hunt, also asked about funding for the Small Business Commissioner, aligning with the noble Lord, Lord Sharpe. The Small Business Commissioner is grant funded by the Department for Business and Trade and will be provided with the additional resources needed to carry out its additional functions. The commissioner will also have the power to recover the costs of investigations, enforcement and adjudication.

The measures in this Bill to deal with late payment are proportionate and will address persistent poor payment behaviour. However, they are not so punitive as to disincentivise doing business with small businesses. A 60-day payment term, for example, is perfectly reasonable and achievable. Looking at some debtors’ books and creditors’ ledgers, I would not say that 60 days is normal, but it can be bearable.

The noble Lords, Lord Holmes and Lord Risby, asked about public authorities’ payment terms of 30 days and 60 days. Public authorities are already required to pay within 30 days under the Procurement Act 2023. It is right that the Government lead by example— I mentioned the example set by the Department for Business and Trade—and maintain that high standard. In the private sector, the Bill addresses a wider range of commercial relationships, and a 60-day maximum strikes the right balance.

The noble Lord, Lord Holmes, asked about fining global companies. I think this is an opportunity to thank him for his contribution, especially his knowledge on AI and digital products and all that, which I will obviously share with my officials. The Bill applies to commercial contracts that have a sufficient connection to the UK and for government by UK law. The commissioner will have powers to address poor payment behaviour of those carrying on business in the UK.

I am running out of time. I will have to write to the noble Baroness, Lady Bennett, because she asked about a couple of technical points. I will ensure that she gets a letter from the officials—likewise the noble Baroness, Lady Kramer, on the question of a whistleblower and the FCC.

Throughout today’s debate, noble Lords from across the House have brought valuable expertise and experience. As this Bill progresses through Committee and subsequent stages, I look forward to constructive discussions with noble Lords across the House to ensure that the legislation achieves its objective in a proportionate and effective manner. Late payment destroys cash flow, it destroys confidence, and too often it destroys businesses altogether. This Government are determined to change that. Once again, I thank all noble Lords for their contributions in today’s debate, and I commend this Bill to the House.

Bill read a second time.

Moved by

[Lord Leong]

That the bill be committed to a Grand Committee, and that it be an instruction to the Grand Committee that they consider the bill in the following order: Clauses 1 to 9, Schedule 1, Clauses 10 to 17, Schedule 2, Clauses 18 and 19, Schedule 3, Clauses 20 to 25, Schedule 4, Clauses 26 to 32, Title.

Motion agreed.