What Does The New Late Payment Bill Mean For Construction?

Late payment has been a defining feature of the construction sector for decades. Long payment chains, retentions held back until final sign-off, and payment terms that stretch well beyond what's considered healthy have all become normalised parts of how the industry operates - even as they quietly undermine the businesses working within it.

That may be about to change. The government's new Late Payment Bill has formally entered Parliament, and it's being described as the toughest crackdown on late payment in a generation. For an industry where cash flow problems are so often the difference between a business surviving and folding, this is worth paying close attention to.

What's Actually In The Bill?

At its core, the Bill introduces three major changes that will directly affect how construction businesses get paid:

A legal cap of 60 days on payment terms for large companies paying smaller suppliers, closing off the practice of stretching payment terms out indefinitely. Mandatory interest on late payments, applied automatically rather than something a business has to request or negotiate. And, specific to construction, a ban on withholding retention payments - money typically worth 3-5% of a contract's value, often held back for months or years after the work itself is complete.

That last point matters enormously for this sector. Retentions have long been one of the most persistent frustrations in construction, tying up funds that businesses have already earned long after the job is finished, sometimes disappearing altogether if a main contractor becomes insolvent before releasing them.

Why This Matters More For Construction Than Most Industries

Construction already carries some of the worst payment performance of any UK sector. It remains one of the industries with the highest number of business insolvencies, and payment delays here regularly run well beyond what's considered a healthy cycle elsewhere in the economy.

Much of this comes down to the structure of the industry itself. Payment moves down a chain - from client, to main contractor, to subcontractor, to supplier - and every link in that chain is dependent on the one above it. A delay at the top doesn't just affect one business; it ripples all the way down, often hitting smaller subcontractors and suppliers hardest, as they typically have the least room to absorb a cash flow shock.

A legal cap on payment terms, automatic interest, and an end to indefinite retention withholding are all aimed squarely at breaking that pattern.

Is This Law Yet?

Not quite. The Bill is still working its way through Parliament, so nothing changes overnight. But its progress reflects a wider shift already underway - the Small Business Commissioner's office recovered significantly more in overdue invoices last year than the year before, and enforcement pressure is clearly building even ahead of the legislation taking effect.

What Should Construction Businesses Do In The Meantime?

The direction of travel is clear, but businesses don't need to wait for the Bill to become law to start protecting their own cash flow. A few practical steps can make a real difference right now:

Review payment terms on current and upcoming contracts, and don't assume a retention will simply be released on time without following up. Keep a close eye on debtor days - how long it's actually taking customers to pay - rather than only looking at the total value of outstanding invoices. And where a payment has genuinely gone quiet, act early rather than waiting it out; the longer an invoice sits unresolved, the harder it typically becomes to recover in full.

Legislation can shift the balance of power over time, but it won't chase an overdue invoice for you today. If you're a contractor, subcontractor, or supplier sitting on a retention or invoice that's overdue, specialist construction debt recovery can often resolve it long before a court, or a new law, ever needs to get involved.