The retention ban marks a new era for construction finance. The UK government's landmark "Backing Your Business" plan is set to unlock £11 billion back into the economy by ending decades of late payment culture and construction at the centre of it.
The UK government has just made its boldest move on construction payments in over 25 years. On 24 March 2026, the Department for Business and Trade announced a ban on cash retentions in construction contracts; alongside a hard 60-day cap on payment terms for large firms paying smaller suppliers, and mandatory interest on late payments set at 8% above the Bank of England base rate. For subcontractors and specialist contractors, this is the biggest shift to working capital rules since the Late Payment of Commercial Debts Act 1998.
For construction businesses, this is not a policy update to file away. It is a fundamental shift in how commercial teams manage contracts, how finance teams track cash and how the entire supply chain gets paid. The question is not whether this changes things. It does. The question is whether construction businesses are ready or whether they will absorb this money into overhead and face the same cash flow crisis next quarter.
What the Retention Ban Actually Means
The retention ban ends the practice of withholding a percentage, typically 5% of a subcontractor's payment as security against defects. Under the old system, that money was held, sometimes for 12 months or more, with no ring-fencing, no protection and no guarantee it would be returned.
When a main contractor went into insolvency, that retained money disappeared with them. Subcontractors joined the queue of unsecured creditors often recovering nothing.
According to the National Federation of Roofing Contractors, around £300 million of roofing and cladding subcontractors' cash was held in retention at any one time as recently as 2021. In 2025, 80% of NFRC members still reported retentions were hurting their business.
That ends now. Or at least, the consultation on its implementation has begun and the direction of travel is clear.
What changes under the new rules:
60-day maximum payment terms for large firms paying smaller suppliers. A ban on withholding retention payments in construction contracts. Mandatory statutory interest at 8% above Bank of England base rate on all late payments. A statutory deadline for raising invoice disputes; miss it, and you owe compensation. New powers for the Small Business Commissioner to investigate, adjudicate and fine persistent late payers.
Why the 60-Day Cap Matters as Much as the Retention Ban
The retention ban gets the headlines. But the 60-day payment cap is equally structural.
Late payments cost the UK economy £11 billion every year and result in approximately 38 business closures per day. For construction, where insolvency rates are among the highest of any UK sector; 15.2% of all insolvencies in England and Wales in July 2025, faster payment cycles are not a convenience. They are a survival mechanism.
The 60-day cap shifts the liability from the supply chain back toward the client and main contractor. Combined with mandatory interest, it creates a genuine financial cost for delays; not just a reputational one.
The Mistake Most Construction Businesses Will Make
Cash arrives in the account. The team breathes a sigh of relief. Suppliers get paid. Wages go out. The buffer covers a slow month.
And then next quarter, the same cash flow gap reappears.
This is the wrong response to the retention ban. Treating freed retention cash as a survival buffer repeats the same cycle. It solves this quarter's problem and creates next quarter's.
The construction businesses that will benefit most from these reforms are the ones that use the freed capital to build structural financial resilience; not plug immediate holes.
The Right Application: Building Financial Control
The 5% that comes back to you is working capital that should work. The question is: working toward what?
Invest in systems that prevent the next gap
Retained cash represents a real opportunity to upgrade the financial infrastructure of your business; the tools, processes and visibility that stop cash flow crises before they happen.
Construction businesses operating on disconnected spreadsheets, manual CVR processes and fragmented invoice management will face the same problems regardless of what the retention ban unlocks. The root cause is not retention; it is the lack of real-time financial control.
Understand your true cash position at any moment
With payment terms shortening and mandatory interest applying to late invoices, the commercial stakes of poor financial visibility rise sharply. A finance team working from last month's spreadsheet is no longer adequate.
Construction management platforms like Xpedeon give CFOs and commercial directors real-time visibility into cash flow, commitment exposure, subcontractor liabilities and retention tracking, across every project and entity, from a single system. This is the kind of financial control that turns regulation into competitive advantage.
Protect your retention position proactively
Even before the ban is fully implemented, your business needs processes for tracking every retention deducted, every payment due date and every subcontract liability in real time. Manual tracking is simply not fast enough. Purpose-built retention management and subcontract payment governance tools ensure you capture what you are owed and pay what you certify, not more.
Suggested Read: Contract Management: Tackling Retention & Variation Issues
What Retention Ban Means for CFOs and Finance Teams
For construction CFOs, the retention ban and 60-day cap change three things simultaneously:
- Cash forecasting becomes more predictable; but only if your systems can model it accurately
- Subcontractor liabilities must be tracked with greater precision, as payment timelines tighten
- Mandatory interest creates a financial cost for delayed action; the commercial case for faster processes is now quantified
Xpedeon's Cash Flow and Retention Management module is purpose-built for exactly this environment; integrating retention tracking, liability management, and payment discipline into a single construction management platform. Finance teams move from reactive reconciliation to proactive cash governance.
What Retention Ban Means for Subcontractors
For subcontractors, the win is real; but it requires preparation:
- Ensure your contracts are updated to reflect new payment terms before work begins
- Know your retention position on every live contract; what is held, by whom and under what release conditions
- Track invoice dispute deadlines carefully; the new rules create statutory windows that, if missed, transfer liability to you
- Use the released retention capital to fund systems that improve your own payment discipline and commercial governance
What Retention Ban Means for General Contractors
General contractors face the most significant operational adjustment. The removal of retention as a performance mechanism means alternative safeguards will need to be established.
Legal experts at Osborne Clarke have noted that employers may look to stricter notice requirements or Liquidated and Ascertained Damages as immediate responses. The Construction Leadership Council has acknowledged that both clients and the supply chain will need time to adapt.
For general contractors, the most valuable response is tighter supply chain governance; not looser. Subcontract management, performance tracking and procurement controls become even more critical when retention is no longer available as a backstop.
Future-Proofing with Xpedeon: From Fragmented Processes to Full Financial Control
As the legal framework tightens, manual processes; spreadsheet CVRs, disconnected invoice workflows and untracked subcontractor liabilities stop being inefficiencies and start being liabilities.
Xpedeon is purpose-built for exactly this environment. Here is how construction businesses turn regulatory pressure into operational advantage with Xpedeon.
1. Eliminate Invoice Leakage at the Source
Xpedeon's three-way matching engine; PO, GRN and invoice ensures every supplier invoice is validated against procurement and delivery records before it reaches payment. No manual reconciliation. No misallocated job costs. Every invoice registered, matched and tracked from the moment it arrives giving your finance team a clean head start on the 60-day clock.
2. End to End Subcontract Governance
Xpedeon's subcontract management module gives your commercial team complete visibility into every work order, variation, certification and payment application all in one place. Subcontractors submit applications digitally. Your team sees total liability in real time. Payment notice deadlines are tracked automatically. No disputes at closeout. No retention surprises.
3. One System. Every Team. One Source of Truth
Finance, commercial and site teams all work from the same live data inside Xpedeon. Cash flow, retention positions, commitment exposure and CVR reporting are not reconstructed at month-end; they are visible right now. That is the level of transparency the most businesses either small or large and your clients will increasingly expect.
Is Construction Ready?
The 12 to 24-month window for contractual adjustment is your opportunity to build the financial infrastructure that makes compliance automatic, not reactive.
Construction businesses that act now will enter the new payment regime with stronger controls, tighter margins and greater cash visibility. Those that wait will face the same fragmented processes under a far less forgiving legal framework. Is your business ready for the most significant construction payment reform in a generation?