Late payment is not a marginal irritation for UK businesses. It is a structural weakness in the economy that continues to undermine growth, productivity and business survival, writes Tracey Westell.
The Government’s Late Payments Research estimating its economic cost and impact on the economy, paints a stark picture of the scale of the problem and its consequences for small and medium-sized enterprises.
It estimates that late payments cost close to £11 billion every year. Around £26 billion is owed in late invoices at any one time, affecting approximately 1.5 million businesses annually, according to London Economics acting on behalf of the Department for Business and Trade.
For the average SME experiencing late payment, this equates to around £17,000 tied up in unpaid invoices, money that should be funding wages, tax liabilities, supplier payments and growth. In 2024 UK small businesses were owed £112billion in unpaid invoices! This is a disgrace and needs to be remedied fast.
For SMEs, cash flow is the lifeblood of business. Unlike large corporates, most smaller firms do not have deep reserves or easy access to low-cost finance. When customers pay late, the impact is immediate and often severe.
The research shows that businesses affected by late payments spend an average of 86 hours a year chasing overdue invoices. This is time taken away from sales, customer service, innovation and leadership. More importantly, it creates ongoing uncertainty, making it difficult to plan, invest or even meet day-to-day obligations.
‘When one business is paid late, it is more likely to delay paying its own suppliers, creating a domino effect that spreads through entire sectors’
The consequences are visible across the economy. Cash-flow stress linked to late payments contributes to an estimated 14,000 business closures every year. These are viable businesses that fail not because of poor products or lack of demand, but because money owed to them is withheld for too long.
Late payments do not only harm individual firms. They weaken supply chains and reduce overall economic resilience. When one business is paid late, it is more likely to delay paying its own suppliers, creating a domino effect that spreads financial stress through entire sectors.
The report also highlights reduced investment as a key outcome. SMEs experiencing persistent late payment are more likely to delay hiring, postpone investment in technology and training, or abandon growth plans altogether. Over time, this suppresses productivity and innovation, two areas the UK economy can least afford to weaken.
In an environment already burdened by rising tax pressures, increased business rates and higher operating costs, late payment acts as an additional and unnecessary brake on economic recovery and long-term growth.
While systemic reform is essential, SMEs must also take proactive steps to reduce their exposure to late payments.
Clear payment terms should be agreed before work begins, with realistic but firm deadlines. Robust credit control processes, including credit checks and sensible credit limits, can prevent problems before they arise. Invoicing should be prompt, accurate and followed by consistent, professional follow-up.
Crucially, businesses must be prepared to enforce their rights. Too many SMEs tolerate poor payment behaviour for fear of damaging customer relationships, even when those relationships are already unbalanced and risky.
Tracey Westell is a director of Pecunia. More on them here
