The Commercial Payments Bill is a potentially watershed moment in construction finance. If enacted as planned, the Bill would cap most commercial payment terms, add interest on late payments and phase out retentions. Its success will depend on a document most subcontractors already send out every month: the application for payment.
Get that form wrong and a routine request for money could become the sum a payer is legally bound to pay. Many finance teams in construction have yet to figure out what the changes will mean for them. This piece sets out what the Bill would change and what teams can do about it.
Payment reform is fast approaching, and it appears most of the industry is unprepared for what’s coming. The Commercial Payments Bill, which entered the House of Commons on 21st October 2026 for its first reading, would cap most commercial payment terms at 60 days, set a 30-day limit for public sector buyers, add late payment interest at 8% above the Bank of England base rate and phase out retentions.
The intention is fair; to prevent businesses, particularly smaller suppliers, being used as an involuntary source of finance. Yet, in order to succeed, the Bill has placed a heavy burden on a document that subcontractors already send out every month: the application for payment. Arguably, the application was not built to carry this much weight. However, if the industry gets it right, the reforms under the new Bill have a fair chance of working well. Get things wrong, and a routine request for money could become a legal instrument that determines the sum that contractors must pay. Most finance functions at construction firms have not yet realised the likely implications. This piece looks at what the changes under the bill will mean, and what to do about it.
The application for payment now does two jobs
An application for payment asks for money. Under the Commercial Payments Bill, it may also fix the sum a payer must pay. If the payer misses the notice period, then a qualifying application could become the document that sets that figure. That move effectively changes what an application has to say, and most applications are not written with it in mind.
Let’s take a hypothetical example: a subcontractor who applies for £100,000 when the contractor values the work at £75,000. If a contractor pays £75,000 and explains the difference in an email, that still does not replace the notice process. The £25,000 disagreement stays open. Under the Bill, it becomes both a cashflow problem and a dispute.
At present, many applications for payment still leave out the payment cycle, the calculation, or a clear statement that the document is meant to have contractual effect. For years, those omissions have cost teams a little in terms of lost time and effort to resolve them. Under the Bill, those gaps could matter far more.
However, the current process is not without its challenges. Payapps’ own survey of UK subcontractors, conducted in April and May 2026, showed a picture of frustration. 79% of subcontractors said they wait longer than they should to be paid, and 42% said they would turn down future work with a contractor who pays late. The sample size (n=127) is small, so it should be read as an indication. Whilst it’s not a national measure it’s still a pattern the industry cannot afford to ignore, and the proposed new Bill adds potential new complexity to the process.
How will the seven-day Pay Less Notice requirement impact construction commercial teams?
Today, a pay less notice period of less than seven days can be agreed upon in the contract. The Commercial Payments Bill would set the minimum period for a pay less notice at seven days. For example, a contract that allows two days’ notice would, in future, lose five days. So, if the final date for payment is the 30th of the month, the latest pay less notice moves back from the 28th to the 23rd.
On paper, that’s a small change, but in practice, it does much more by rewriting a valuation team’s entire working week. Inspections, variation checks and deductions will all need to be finished earlier; furthermore, a last-minute commercial meeting will no longer resolve a payment position that should have been settled days before.
Who bears the financial risk under the Commercial Payments Bill?
Main contractors and specialist subcontractors will feel the pressure directly, as they sit on both sides of the payment chain. A main contractor is a payee to the client and a payer to its subcontractors. A specialist subcontractor often fulfils similar positions, acting as payer to its own suppliers.
Each role brings its own difficulty, with contractors needing to assess many packages much sooner, and subcontractors having to send applications that are clear, well supported and on time. Getting either part wrong will see the risk getting pinned on the business that acted too late.
The funding gap is the biggest problem. The Bill’s large-company exemptions would allow an employer and a main contractor to agree longer terms. Which sounds fair, but subcontractors with smaller firms would stay under the cap. This could leave contractors making up that shortfall from their own cash, unless they can renegotiate client terms. Protecting subcontractors is a fair aim, but the Bill does not say who will be producing the cash.
Smaller firms will potentially be the hardest hit. For example, a specialist firm with a handful of contracts and a tight overdraft has much less room for manoeuvre than a national contractor with a banking facility. For SMEs, a longer wait for money already earned is a threat to making payroll.
Late payment interest would become mandatory (at 8% above the Bank of England base rate), so delay here will get expensive. Interest should not be applied to every pound claimed, however. The debt must be established first, which brings the question of valuation back to the centre of the argument.
Disputes will not disappear when the Bill passes
The Bill does not automatically declare every claimed amount as being the correct sum and an application that a payer disputes still has to be valued, with the arguments likely to follow the same lines. Payapps’ commissioned construction subcontractor research found that the most common causes of payment disputes were variations not agreed (79%), valuation differences or disagreements about completed work (74%) and slow responses or approvals (61%).
Slow responses are the cause the Commercial Payments Bill is most likely to expose. Under a seven-day pay less timetable, a payer that takes three weeks to answer a query will have run out of road before the notice falls due. So a subcontractor waiting on that answer may well find it arrives too late to matter.
Variations are the harder problem. A change that nobody agreed in writing before the work was done is difficult to value after the event. Teams should record variation instructions and agreed values as the work progresses, because an application can only claim what the paperwork supports. Payapps’ research also found that nearly three quarters (73%) of subcontractors say payment process disputes arise ‘sometimes’ or ‘often’, which suggests good housekeeping habits are still far from universal.
Retentions swap one form of security for another
The Bill proposes to phase out retentions, and subcontractors will welcome that. Money they earn would no longer sit with the client or contractor until the end of the job. Less of their cash would be exposed if an upstream firm fails.
Yet clients and contractors would lose a practical tool. Retention gives them leverage to get defects put right and the replacements are not interchangeable. Parent company guarantees are not available when there is no suitable entity, and they could possibly carry correlated insolvency risk with the firm they support. Performance bonds cost money and usually come with strict conditions, meaning smaller firms may struggle to get surety products at all.
One question will shape many contracts: how far will the ban on retentions go? If a payer withholds money until a collateral warranty or guarantee arrives, would that count? Frustratingly, the Bill does not answer that point clearly.
What to do before the Commercial Payments Bill arrives
The Bill is not yet law, but the work to prepare for it should start now. Finance teams should map out each contract’s application date, valuation date, due date, notice deadline and final payment date. They should also check which applications can act as notices and which will need a separate default notice.
Next, teams should move valuation approvals earlier, wherever a contract uses a short notice period. Upstream and downstream cash flows should be modelled separately, looking at the loss of retention cash and the cost of replacement security. Bonds, milestones and withholding clauses will all need reviewing for practicality and retention ban risk.
Finance and project teams should also agree who owns each date. Often, the commercial manager retains the contract, the quantity surveyor holds the valuation, and the accounts team controls the payment run. Under a shorter timetable, a miscommunication between those three professionals becomes a missed notice.
Payment reform is only as strong as the paperwork that carries it. The Commercial Payments Bill changes the job of an application for payment; the document at present is a request for imbursement, but under the Bill, it could also fix what a payer owes. Teams that notice that shift early on will find the new timetable far easier to live with. The success of the reform will depend on both subcontractors and contractors understanding the changes and getting the documentation right.
FAQs
What is the Commercial Payments Bill?
The Bill is proposed UK legislation designed to stop businesses, particularly smaller suppliers, from being used as an involuntary source of finance. At the time of writing (November 2026), it is still progressing through parliament, it is not yet law.
What would the Bill change about payment terms?
It would generally cap commercial payment terms at 60 days and set a 30-day limit for public sector buyers. Late payments would attract interest at 8% above the Bank of England base rate.
Why does the construction application for payment matter so much?
If a payer misses its notice deadline, a qualifying application could become the document that sets the sum it must pay. To qualify, the application should clearly state the payment cycle, how the sum was calculated and that it is intended to have contractual effect.
What would change for pay less notices?
The Bill would set a minimum of seven days’ notice for pay less notices. Some contracts currently allow shorter periods, so valuations would need to finish earlier. For example, if payment is due on the 30th of the month, the latest notice would move from the 28th to the 23rd.
Does the Bill settle disputes over the amount owed?
No. The Bill does not make every claimed amount correct. An amount in dispute still has to be valued, and the payer’s obligation to pay the notified sum can arise even while the valuation argument continues.
What should finance functions do now, ahead of the Commercial Payments Bill becoming law?
Map each contract’s application date, valuation date, due date, notice deadline and final payment date. Check which applications can act as notices, move valuation approvals earlier where notice periods are short and agree who owns each date.
Before publication, recheck the Bill’s status on Parliament’s website, to keep tabs of its progress and take note of any substantive changes.
