Late payment remains one of the most persistent financial pressures on UK small businesses, despite years of promises from successive governments to tackle the problem. Campaign groups estimate that late and extended payment terms cost smaller firms billions of pounds every year, and new enforcement measures are only beginning to bite.
Research from the Federation of Small Businesses has repeatedly put the annual cost of late payment in the region of 20 billion pounds, a figure that includes management time spent chasing invoices as well as lost interest and written-off debt. The Small Business Commissioner’s office has long argued that a minority of large companies account for a disproportionate share of the problem, with some routinely settling invoices weeks beyond agreed terms.
Enforcement is starting to change shape. The Fair Payment Code, launched in 2025 to replace the Prompt Payment Code, awards gold, silver and bronze accreditations to businesses that pay suppliers on time. Large companies must also publish payment performance data annually through Companies House, giving smaller suppliers a clearer picture of who pays promptly and who does not.
Firms are entitled to claim interest on overdue invoices under the Late Payment of Commercial Debts Act, set at 8 per cent above the Bank of England base rate. In practice, however, many smaller suppliers are reluctant to invoke the rules for fear of damaging relationships with customers who make up a large share of their revenue. Trade bodies say the imbalance of power between large buyers and small suppliers remains the core of the problem.
“Cash flow is the single biggest reason a healthy small business fails,” said a credit management adviser who works with SMEs across the UK. “A contract that promises payment in 30 days but settles in 80 is not a contract, it is an interest-free loan the customer is taking from the supplier.”
Sector data shows the problem is unevenly distributed. Construction and manufacturing report the longest waits, while businesses in retail and hospitality tend to be paid more promptly. The government has said it wants to reduce average payment times, and larger firms with poor records now face the prospect of being named publicly under the new reporting regime.
For small firms, the practical defence remains the same: tighter credit checks, staged invoicing and, increasingly, invoice finance, which lets suppliers draw down most of an invoice’s value within days of raising it. Industry groups argue that real progress depends on the reporting regime being enforced consistently, with the worst offenders held to account rather than allowed to treat supplier credit as a free source of working capital.