Late Payments to SMEs UK: Time to Pay Up
Late payments to SMEs UK are suffocating the economy. The cost to the economy has now reached a staggering £11 billion per year. With thousands of viable, growing businesses forced into decline because of unpaid invoices and slow customer payments. In fact, nearly 40 UK SMEs close their doors every single day as a direct result of disrupted cash flow.
Late payments to SMEs are not a new issue, but the scale and persistence of the problem have prompted urgent government action. In July 2025, the UK Government unveiled the toughest crackdown on late payments in a generation. Declaring war on the culture of delay that threatens the backbone of the British economy: its small businesses.
This blog explores why the issue persists, what changes are coming, and how strategic tools such as invoice Finance can help UK SMEs survive and thrive.
Why Late Payments to SMEs Persist
Despite countless campaigns and industry pledges, late payment culture continues to plague UK SMEs. The reasons are both systemic and behavioural:
Power imbalance: Larger firms sometimes impose long payment terms, which small businesses can not push back on. Unfortunately, some big firms improve their own cash flow by intentionally paying their invoices past their due date.
Lack of enforcement: Voluntary codes of conduct, such as the Prompt Payment Code, have no real consequences for late payers.
Cash flow hoarding: Some corporations hold onto cash deliberately to bolster their own balance sheets at the expense of suppliers.
Inconsistent invoicing: Many small businesses struggle with invoice formatting, terms, or lack formal credit control processes.
The results? An SME can have all the clients in the world, and still fail if their invoices are not paid on time.
This is not just a delay. It is a threat to business continuity, staff wages, investment, and growth. Businesses often stretch themselves thin waiting on payment, forced to rely on overdrafts, short term loans, or personal reserves to stay afloat. These are measures that increase risk without solving the underlying problem.
The cultural acceptance of late payment as “just the way it is” continues to entrench itself, discouraging newer SMEs from speaking up or enforcing their payment terms. Late payment becomes a chain reaction. If one supplier is not paid on time, their own obligations go unmet, creating a cascade of disruption that travels across entire supply chains.
Government Crackdown: The 2025 Reform
Recognising that voluntary measures have failed, the government has introduced sweeping reforms:
Mandatory reporting: Large firms will be legally required to publish supplier payment data in their annual reports.
Reduced payment terms: The maximum standard payment period will drop from 60 to 45 days.
Interest and penalties: Statutory interest will be mandatory for late payments.
Board level accountability: Audit committees will be responsible for supplier payment behaviour.
New enforcement powers: The Small Business Commissioner will gain authority to fine repeat offenders.
The government is placing increased emphasis on real time accountability and transparency. When businesses are required to publish how they pay their suppliers, and directors are held responsible for poor practices, cultural change becomes more achievable. However, until these measures are fully enforced and proven effective, many SMEs remain exposed to the consequences of delayed income.
Invoice Finance: Turning Invoices into Capital
Whilst these reforms are welcome, enforcement will take time. For SMEs facing immediate cash flow challenges: Invoice finance is a vital lifeline.
Rather than waiting 30, 60, or even 90 days to receive payment. Invoice finance allows businesses to access up to 80% of the invoice value within 24 – 48 hours.
This means:
Predictable cash flow.
Faster reinvestment.
Avoiding reliance on selling fixed assets.
Access to working capital without taking on new debt or long term debt.
Disclosed invoice discounting, and recourse factoring are both types of invoice finance. Each solution suits different business models, but the goal is the same: inject cash into your business faster.
Invoice finance converts outstanding invoices into accessible capital. Allowing businesses to operate on a realistic cash flow timeline, rather than the schedule imposed by clients. This proactive approach enables small businesses to stay one step ahead of their obligations. Rather than reacting to late payments, they can plan with confidence, knowing their access to working capital is not solely dependent on customer timelines.
Why Recourse Factoring Works Against Late Payment Risk
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Recourse Factoring goes a step further by combining cash advances with professional 3rd party credit control services.
At Partnership Invoice Finance, this includes fully outsourced credit control support. Our team will:
- Personally contact your clients. We do not rely on automated systems.
- Manage your sales ledger.
- Maintain your customer relationships whilst you focus on business.
This is not about automation taking over customer service. It is about having experienced professionals manage your accounts receivable. Helping you avoid negative working capital, unbalanced working capital ratios, and reactive decisions.
It is a tool not just for cash flow, it is a working capital management solution.
Recourse factoring is particularly useful for businesses that struggle with time or expertise in managing their credit control. It removes the pressure from internal teams and shifts the responsibility of debt management to a partner whose sole focus is ensuring invoices are paid efficiently. Additionally, it protects the business owner from having to jeopardise valuable customer relationships by pursuing payments personally.
Late Payments and the Working Capital Chain
Late payments disrupt every stage of the working capital cycle:
Sales are made.
Invoices are issued.
Payment is delayed.
Bills, receivables, salaries, and stock go unpaid.
Your business may be profitable on your cash flow statement. But if your invoices are not paid on time, you may face short term liabilities exceeding your incoming cash.
This is called negative working capital. And it is a silent killer of small businesses.
By converting accounts receivable into usable cash, invoice finance helps businesses maintain a positive working capital position even during periods of client delay.
Businesses often monitor sales and revenue closely, but without matching attention on cash inflows, the numbers become misleading. What appears profitable on your accounts may be unviable in practice especially if delays in cash collection continue unchecked. Invoice finance bridges the cash flow gap.
Avoid the Effects of Late Payments to SMEs
Through the Governments Small Business plan, change is coming. To avoid the effects of late payments to SMEs. If you need help now with the effects of late payments financial solutions such as disclosed invoice discounting and recourse factoring can provide you with support.
These facilities can be the difference between growing your business or joining the growing list of companies lost to unpaid invoices.
Waiting on customer goodwill is not a sustainable strategy. Invoice finance provides funding that evolves with your cash flow needs. Not with the payment habits of your slowest paying clients. With invoice finance, businesses unlock freedom. Freedom to plan, freedom to hire, and freedom to grow.
Ready to Protect Your Cash Flow
If you are experiencing delays in customer payments, or want to take a proactive approach to credit control, speak to the team at Partnership Invoice Finance.
We provide fast, flexible, and ethical funding options that protect your business from the real cost of late payments. No hidden fees. Just honest, human led support.
Contact us today, and let us help you assess your late payment risk.
Frequently Asked Invoice Finance Questions
How fast can I receive funds with invoice finance?
Most clients receive up to 80% of the invoice value within 24 to 48 hours of uploading their invoice.
Will my customers be contacted?
With recourse factoring, our team will handle polite and professional customer contact as part of the credit control service.
What makes Partnership Invoice Finance different?
We focus on transparency, direct access to decision makers, and long term client relationships. Clients are never left to chatbots or faceless platforms.
Chris Falby
With over two decades dedicated to helping businesses in the South East thrive, Chris, Sales and Marketing Director, brings a wealth of knowledge in securing financial assistance for SMEs. His career began in mainstream banking, where he gained valuable experience managing advances. This foundation, coupled with his extensive network and expertise in independent funding, allows Chris to provide tailored invoice finance solutions that meet the unique needs of each client.