Late payments are draining £11 billion a year from the UK economy, according to new research from online accounting platform Sage.
Nearly half of all SME invoices (49 per cent) are now paid late, with businesses waiting an average of 27 days after issuing an invoice before they see the money.
For a sector that grew profits by 7.4 per cent in the year to the first quarter of 2026, the strongest pace since 2022, it means that there is a lot of working capital sitting outside of the business.
How is the Government dealing with late payments
It may feel like we have been here before, as late payments have continued to plague SMEs.
Various Governments have tried to deliver change, but new reform is on the way in the form of the Small Business Protections Bill, also known as the Commercial Payments Bill, which puts a clear duty on large firms to pay smaller suppliers on time.
These reforms, once implemented, will introduce
- A new mandatory 60-day cap on payment terms
- Mandatory interest on late payments set at eight per cent above the Bank of England base rate
- A ban on withholding retention payments in construction contracts
The Small Business Commissioner is also being handed new powers, with the office able to investigate poor payment practices and fine the worst offenders
On paper, this is real progress, but the question many are asking is whether reform is moving fast enough to match the scale of the problem.
There are reasons for caution, as the 60-day cap sets a low bar, given the maximum payment term allowed in the public sector is just 30 days.
The Small Business Commissioner’s office is also a small operation, employing only 12 people, a modest team to police an economy where late payments are reportedly closing dozens of businesses every day.
Meanwhile, mandatory e-invoicing, which can speed up payment by five to seven days, is not due until 2029.
That is a long wait for firms already regularly struggling with cashflow challenges that are limiting their growth and generating stress.
Time to act now on late payments
For those already dealing with limited working capital, as a result of persistent late payments, there isn’t time to wait.
They should begin with reviewing their existing credit control processes and payments terms.
Invoice promptly and chase early, ideally with automated reminders, since a delay in sending an invoice is a delay added straight onto the wait for payment.
It doesn’t hurt to run credit checks on new and existing customers, as well, before extending terms to ensure you aren’t putting yourself at risk.
It is also worth knowing that statutory interest on late commercial payments is already available under existing law, not just the incoming Bill, so businesses can charge it now rather than waiting for reform to take effect.
It is understandable that many businesses aren’t eager to chase key customers for late payments over fears that it may damage their relationships with them, but where it is causing widespread issues within the business, it is worth weighing up their true value.
While we welcome the reform that have been promised in the Bill, if you are struggling with late payments now, speak to our team for guidance.
