Late Payments and Cash Flow: How UK SMEs Can Protect Their Business in 2026
For UK SMEs, maintaining healthy business cash flow is essential. You can have strong sales, a healthy order book and profitable customers on paper, but if invoices aren’t paid when expected, the money available to meet day to day costs can quickly come under pressure.
Late payments can make it harder to forecast cash flow, pay suppliers, meet payroll and invest in growth. And with more than 1.5 million UK businesses affected by late payments each year, effective credit management should be a priority for businesses of every size.
How big is the late payment problem for UK businesses?
Late payment remains a significant issue despite improvements in the payment performance of some larger organisations.
Research commissioned by the Department for Business and Trade and the Office of the Small Business Commissioner found that:
- More than 1.5 million businesses – around 28% – are affected by late payments each year.
- Around £26 billion is owed in late payments at any given time.
- Businesses affected by late payments are owed an average of approximately £17,000.
- Late payments are estimated to cost the UK economy almost £11 billion every year.
- Approximately 14,000 businesses close each year as a result of late payments, equivalent to around 38 businesses every day.
- Businesses affected by late payments spend an average of 86 hours each year chasing overdue invoices. Across the economy, this equates to approximately 133 million hours of staff time.
For an SME operating with relatively tight margins, £17,000 in unpaid invoices can represent a significant amount of working capital.
Are UK businesses getting better at paying invoices?
There has been some improvement.
The Department for Business and Trade’s latest official statistics show that large UK businesses took an average of 32 days to pay suppliers in 2025, compared with 35 days when reporting began in 2018.
The proportion of invoices paid late has also fallen from 25% in 2018 to 15% in 2025. However, that still means nearly one in six invoices was paid late by the large businesses covered by the reporting requirements.
For SMEs supplying larger organisations, the message is clear, payment performance may be improving overall, but late payment remains a material commercial risk.
Why late payments create cash flow problems
Cash flow problems don’t necessarily mean a business is unprofitable.
A company may have thousands of pounds recorded as revenue but still struggle to meet its immediate obligations if that money remains tied up in unpaid invoices.
Delayed payments can affect your ability to:
- pay employees and suppliers on time;
- meet VAT, tax and other financial commitments;
- purchase stock or materials;
- invest in equipment, recruitment and growth;
- maintain sufficient working capital; and
- respond to unexpected business costs.
The longer invoices remain outstanding, the greater the potential pressure on the business.
Why checking new customers isn’t enough
Many businesses carry out a credit check before agreeing terms with a new customer. That’s a sensible starting point, but credit management shouldn’t stop once the customer has passed their initial checks.
A company that has paid every invoice on time for several years can still experience financial difficulties.
That’s why ongoing credit monitoring can be just as important as checking a business before offering credit.
Changes in payment behaviour, financial performance and creditworthiness can provide valuable warning signs, giving you an opportunity to review credit limits or payment terms before an outstanding balance becomes unmanageable.
How can SMEs improve credit management?
Effective credit control is about more than chasing customers once an invoice becomes overdue. A proactive approach begins before credit is offered and continues throughout the customer relationship.
Businesses can reduce their exposure by carrying out credit checks on new customers, monitoring existing customers, setting appropriate credit limits and agreeing clear payment terms from the outset.
It’s also important to invoice promptly and accurately, monitor outstanding balances and act quickly when an invoice becomes overdue.
Businesses should also avoid becoming overly dependent on a single customer wherever possible. A large outstanding balance from one customer can represent a disproportionate risk if that business suddenly experiences financial difficulties.
Can businesses charge interest on late invoices?
Under current UK rules, businesses may be entitled to claim interest and debt recovery costs when another business pays late for goods or services.
Where a payment date hasn’t been agreed, a commercial payment will generally become late 30 days after the customer receives the invoice or the goods or services are supplied, whichever is later.
Understanding your rights – and having clear payment terms in place – can therefore form an important part of your credit management process.
Late payment rules are changing in 2026
Late payments are receiving increased government attention.
The Commercial Payments Bill, introduced in May 2026, proposes significant changes designed to strengthen protections against late payment.
Measures include a 60-day maximum payment term for large businesses, mandatory interest on late payments and stronger powers for the Small Business Commissioner to investigate poor payment practices and adjudicate disputes.
For SMEs, this makes 2026 an important time to review internal credit control processes and ensure payment terms, customer monitoring and debt recovery procedures are fit for purpose.
Take control of your business cash flow
You can’t completely eliminate the risk of customers paying late or experiencing financial difficulty. But you can reduce the chances of being caught by surprise.
A strong credit management function can help you understand who you’re doing business with, identify potential risks earlier and maintain greater control over outstanding invoices.
At CMG, we help businesses improve their credit management and protect cash flow through practical tools and outsourced credit control support.
We have a range of free credit management tools designed to help businesses monitor and improve their credit control processes.
If managing outstanding invoices is taking too much time away from running your business, we can also manage your credit control function on your behalf.
Contact CMG to find out how we can help you improve cash flow, reduce late payments and take greater control of your credit management.
Sources
The statistics and legislative information in this article are based primarily on 2025–2026 publications from the Department for Business and Trade, Office of the Small Business Commissioner and The Insolvency Service, including official UK payment-practices statistics and company insolvency statistics.
