Nearly three-quarters of small businesses faced late payments in Q1 2025: What can be done?

At a glance

• The problem of customers paying invoices late is worsening. 
• The government has strengthened regulations as a priority. 
• However, the responsibility still falls on supplier businesses and their accountants to get paid in a timely manner.
• We look at best practices for keeping the cash pipeline flowing. 

Late payment of invoices impacts the majority of small businesses, with research from the Federation of Small Businesses (FSB) showing that 52%, equating to 2.8 million small UK firms, suffered from late payments every quarter in 2022.

Broader economic strain could be worsening the problem. The FSB provided new data revealing that 70% of small firms experienced late payments in the first quarter of 2025.

What are the impacts on SMEs?

The UK’s Small Business Commissioner, Liz Barclay, says that many micro businesses struggle to access cash through banks or invoice financing, turning instead to high-interest options like overdrafts and credit cards. This reduces margins, but putting up prices to counter it may not be an option. “All of this leads to sleepless nights, deteriorating wellbeing and possible mental health problems as well as relationship difficulties and breakdown.”

With the economic outlook worsening, larger customers are stretching payment terms to protect their cash flow, often unintentionally pressuring smaller suppliers. Barclay notes that at big firms, teams may not fully grasp how delays impact those further down the chain. 

“Accountants have a huge role to play in increasing awareness of how procurement to payment systems works in bigger businesses and across supply chains,” she says.

The FSB’s Policy Chair, Tina McKenzie, says: “Late payments and other poor payment practices may feel like a solitary struggle – but they are far from isolated, with the imbalance of power between small businesses and large corporations fuelling the closure of up to 50,000 businesses each year.”

“Failure to pay on time is a clear sign of disrespect for the time and effort small businesses invest. It turns a simple transaction into an ongoing battle – and this creates a cycle where every day becomes a fight to stay afloat.”

What regulations are in place to help?

The Office of the Small Business Commissioner (OSBC) has powers to investigate and make recommendations to resolve payment disputes. To comply with its Fair Payment Code, which recently replaced the Prompt Payment Code, businesses must prove strong payment standards.

The Procurement Act, which came into effect in February 2025, introduces new requirements for large businesses and public sector bodies that are bidding for major public contracts to ensure suppliers are paid within 30 days.

Recent updates to the Duty to Report scheme require the UK’s largest businesses to disclose average payment times to the Department for Business and Trade.

A consultation has also just closed on making e-invoicing mandatory, which could help smaller suppliers get paid quicker. 

Barclay says: “Accountants are closer to their clients than any other advisers and so could be the best possible conduit for delivery of all of the government’s messages and requirements around payment practices.”

McKenzie says the FSB has been working closely with the government on reforms. Last September, ministers pledged a consultation on measures such as payment reporting requirements in annual reports from 2026, which the FSB has long advocated.

How to enforce better payment practices

Late payments are tough to manage, and along with the regulations, businesses and their accountants must take responsibility to ensure invoices are paid. It’s essential to make full use of all available tools to tackle the issue.

Everyone involved has a duty to agree fair terms and stick to them. “We see small businesses failing to submit invoices for months after delivering the work but then complaining that they don’t get paid in 30 days,” Barclay says. “A large proportion of invoices are submitted with errors, then have to be corrected and resubmitted, delaying payment further.”

Vineta Bajaj, Rohlik Group’s CFO, says accountants should encourage clients to review their payment terms, “Shorter terms and clear conditions can improve clarity from the outset.” 

Automation speeds up payments 

Setting up automated invoice systems with reminders can also help. Some accounting platforms now offer invoice tracking and can flag when payments are overdue, giving clients more control. 

“In tougher cases, accountants can guide clients on when to escalate – whether that’s charging interest on overdue sums, bringing in debt recovery, or exploring invoice finance options,” says Bajaj.

“Most importantly, staying on top of aged debt reports and maintaining regular client contact can stop late payments becoming a bigger problem down the line.”

“Good contracts that set out fair payment terms are invaluable,” adds Barclay. “What’s written down is more likely to be adhered to and if there is a dispute the terms are in writing to be checked back on.”

Technology can also significantly speed up payments, but Barclay notes that there’s a gap between its potential and how it’s being used. “Accountants are the closest people to those business owners to help with the digital transformation and tech adoption that could iron out most of these ‘late’ payment problems.”

Solving the late payment problem may require a mix of regulation and genuine collaboration between suppliers and businesses rooted in better understanding of each other’s financial realities.

“It’s great to see ambition from government, but these measures must not be delayed by a sluggish legislative process,” says McKenzie. “We need action now to ensure small businesses are respected and supported, not left to fend for themselves.”

UK’s Small Business Commissioner, Liz Barclay will speak at the IFA’s conference on 26 June. More information here.