Late payments occur when a customer or client fails to pay an invoice by the agreed-upon due date.
For many small businesses, late payment is more than an administrative issue — it’s a significant financial risk that can threaten cash flow, hinder growth, and limit investment. To tackle the issue, the Government is now introducing its toughest crackdown on late payments in over 25 years.
Late payments are estimated to cost the UK economy almost £11 billion per year, with 14,000 businesses closing each year (equivalent to 38 businesses every day). Over 1.5 million SMEs (or 28%) are affected by late payments each year.
Late payments create a chain reaction that affects almost every part of a small business:
For SMEs, even a small number of late-paying customers can create disproportionate financial pressure.
The UK Government’s latest efforts to tackle late payments focus on a series of reforms to improve cash flow across supply chains.
There is currently no specific “start date” for the complete implementation of the Late Payment reforms, but they are expected to be rolled out gradually after 2026, in early 2027, following the Bill's passage through Parliament and the establishment of the necessary regulations.
Although some details are still being finalised, the primary changes that will impact SMEs include:
1. Stronger maximum payment terms
Large businesses will now be required to pay smaller suppliers within 60 days. This aims to prevent lengthy payment delays that have long frustrated SMEs and sole traders, helping to improve cash flow and provide greater certainty over when invoices will be paid.
2. Mandatory interest on late payments
Small businesses are often the hardest hit by late payments. Under the new reforms, commercial contracts will be required to include statutory interest at 8% above the Bank of England base rate. This means that if a customer pays late, you'll automatically be entitled to claim interest on top of the outstanding amount, helping to compensate for the impact on your cash flow.
3. Deadline for disputing invoices
Chasing unpaid invoices can drain valuable time and resources. The new reforms are designed to make the process easier by introducing a simpler adjudication route for payment disputes, helping small businesses resolve issues without resorting to lengthy and potentially costly legal action.
4. Increased enforcement against persistent late payers
The Small Business Commissioner will gain expanded powers, including the authority to investigate poor payment behaviour, help resolve disputes between businesses without going to court, and impose significant financial penalties on organisations that consistently pay late.
While payment enforcement is an internal process, reducing late-payment risk starts earlier — by knowing who you are doing business with.
CoCredo Credit insights can provide business owners with the information they need to improve decision-making:
Our credit reports for UK companies offer valuable insights that help you minimise risk and grow your business with confidence. They include detailed information on payment behaviour, showing how long companies typically take to settle their invoices.
Additionally, these reports provide a comparison of how your customers pay their own suppliers relative to how they pay you.
Additionally, business credit monitoring is available on our UK reports, allowing you to track changes to your customers and suppliers without having to check their company reports regularly.
Add them to your monitoring watchlist to receive (daily or weekly) email notifications for any company changes, including positive and negative impacts on your business and payments.
For more information on how CoCredo can support your business credit risk strategy, why not take advantage of our free business credit check trial offer or register with us today?
What is the best way to chase late payments?
The best approach is a structured, consistent process that escalates professionally over time without emotional communication.
How do you deal with repeat late payers?
Repeat late payers should be reviewed for credit risk and may require tighter terms, credit limits, or revised trading conditions as detailed above, charging interest may be an option.
Can enforcing payment terms damage customer relationships?
Not usually. In fact, consistent enforcement often improves trust by setting clear expectations and reducing misunderstandings.
What is the average payment delay for UK SMEs?
Payment delays average 32 days beyond the agreed-upon invoice terms, particularly when trading with larger organisations.
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