“Some 42% of small businesses were paid late in the past year, nearly double the level recorded through 2023 and 2024. The Small Business Commissioner puts the money tied up in overdue invoices at £26 billion at any one time.”
Four ways government could ease the founder pay squeeze, Enterprise Nation
Late payment is becoming a real issue for the UK’s small businesses. With £26 billion in overdue invoices due at any point in time, payment terms are not being met, cashflow is suffering and business owners are struggling to find the capital to keep trading.
That’s the bad news. So, what’s the good news?
The Government is listening and legislation is on the way to tackle the very real problem of late payments, overdue invoices and rising aged debt.
What’s the Commercial Payments Bill?
The Commercial Payments Bill is a key element in the Government’s ongoing plan for small and medium-sized businesses.
Once it’s made law, the Bill will tackle the problem of late payments, by setting out key pillars to encourage swift payment and protect businesses from late payments.
The Bill will:
- Impose maximum payment terms of 60 days, with strictly limited exemptions
- Mandate interest on late payments at 8% above the Bank of England base rate
- Give suppliers the right to a fixed sum where a purchaser raises a dispute late or without sufficient information
- Prohibit the deduction and withholding of retention payments under the terms of a construction contract
The Bill is a solid move towards fixing the problem of endemic late payments. But there’s currently no clear date for enactment, with the Bill unlikely to become law before 2027.
So, what can you do in the meantime to reduce late payments and resolve your aged debt?
Let’s look at some proactive steps you can take to improve payment times, boost cash collection and bring down your aged debt numbers:
Automate your invoicing and credit control: Use accounting software, like Xero or QuickBooks, to issue instant e-invoices with embedded payment links and automated email reminders for overdue accounts.
Incentivise prompt settlement: Offer your customers small discounts (for example, a 2% discount for payment within 7 days) for prompt payment. And insist on deposits or milestone payments on large projects, helping to bring cash in up front.
Run credit checks on new customers: Review the risk rating and business credit scores of new clients using credit reference agencies. This helps you set up appropriate credit limits and tailor bespoke credit terms, before delivering any goods or services.
Enforce your statutory interest rights: Charge statutory late payment interest (currently 8% plus the Bank of England base rate) plus reasonable recovery costs under the current UK late payment regulations.
Explore invoice financing: Invoice discounting or factoring is a fast, straightforward way to release the value of an unpaid invoice. This helps you access the cash and boost working capital, without waiting on the customer to meet your payment terms.
If late payment is becoming a headache for your business, come and talk to us. Our team can review your payment terms, cash collection and credit control processes, to make sure your customer payments arrive when they should.
