Buy now, pay never: the UK’s late payment crisis bankrupting startups

The UK government is announcing new measures to tackle late payments in January, marking the most significant legislative action in 25 years. For founders tired of playing debt collector, it can’t come soon enough.

Entrepreneurs have been desperate for concrete government action on an endemic issue that, according to the latest figures, costs the UK economy £11 billion per year and sees 38 companies shut down every day.

Under the new rules, payment terms would be capped at 60 days, companies would have 30 days to dispute an invoice or pay in full, and most significantly, the Small Business Commissioner would finally have the power to fine companies that repeatedly pay late. For the first time, there would be real consequences.

But for many entrepreneurs reading this, there are far too many conditional sentences in the previous paragraph to make anyone feel particularly confident or rosy about the future. That’s because every entrepreneur understands that the late payment crisis goes beyond legislation, for there’s a larger cultural element at play: namely, the power imbalance between big buyers and small suppliers.

This power imbalance typically plays out as follows. A freelancer or small business owner finishes a job, sends an invoice, and waits for payment. Thirty days go by. Then sixty. The entrepreneur rehearses what they’ll say when they call, knowing they won’t, because that client represents 40% of their revenue and they’re terrified they’ll go elsewhere if they push too hard.

In other words, late payments are symptomatic of the asymmetric negotiating power in our business ecosystem. Large businesses can use their weight to extend payment terms, effectively treating supplier invoices as interest-free loans. This delay keeps cash on their balance sheets for longer, allowing them to invest it, cover other costs, or present stronger quarterly results to investors.

Meanwhile, cash-strapped startups struggle to access favourable loans from the bank because late payments cause their erratic cash flow, which in turn damages their credit rating. And this repeats itself indefinitely until bankruptcy.

The toll on founders is significant. Business owners spend an average of 86 hours chasing debt, according to research by the Small Business Commissioner. At any given time, businesses in the UK are owed an estimated £26 billion in late payments, with an average of £17,000 per affected business.

Time wasted chasing payments is wearing down small business owners, too. A survey of 2,000 small businesses conducted by GoCardless in March showed that half of SMBs consider late payments an ‘inevitable cost of doing business’ and 32% feel they have little to no control over managing them.

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This fatalistic attitude toward chasing payments means business owners are less willing to have the difficult conversations necessary to get what they are due, or are at least out of practice with them. So, until the legislation arrives, entrepreneurs may want to call upon strategies to help them navigate these uncomfortable conversations. While some may be immediately apparent, others may serve as valuable reminders or even a nudge to do more:

Set payment expectations early or, rather, win the invoicing battle before you sign the deal. This conversation needs to happen before the contract is signed, not after. Push on payment terms, confirm the accepted invoice format, and agree on the invoice emission date or milestone triggers. Don’t assume 30 days is standard just because everyone does it. If you know a client typically pays in 60 days and won’t budge, price that delay into your quote or negotiate a deposit upfront. When the terms are clearly stipulated in the contract, there’s no room for argument later Get your invoicing admin right. The fastest way to delay payment is to give someone an excuse not to process your invoice. Make sure you have all the details right: does the client need a purchase order number? Are you using the correct format? Do you have the proper contract for invoicing? Is every piece of information 100% accurate? These administrative details may sound tedious, but they remove the most common reasons account payable teams give for delaying payment. Send the invoice as soon as the work is done. Every day you delay is a day you’re not getting paid Build relationships with the people who actually pay you. For regular customers, get to know the accountant or accounts payable person directly. Email is easy to ignore, but a phone call to someone you’ve built a relationship with forces the issue. You don’t need to be aggressive or combative to get your point across. A simple, “I’m calling to check on invoice #123 from last month,” is enough. Often, the only thing standing between you and payment is someone actually asking for it. If chasing payments isn’t something you want to handle yourself, invoice factoring services can take this administrative burden off your plate, though it comes at an extra cost. Another, less direct, option is to use software that sends automatic payment reminders at set intervals to remove the emotional burden of chasing. Research published by Sage earlier this year suggests that e-invoicing reduces late payments by up to 20% and accelerates cash flow. Offer early payment discounts. Rather than penalising late payments, try incentivising early payment by shaving a small percentage off the invoice. Even a 1-2% discount for payment within 7 or 14 days can encourage prompt payment, particularly from clients who have the cash flow but just aren’t prioritising your invoice. This frames the conversation around their gain rather than your loss, which changes the dynamic entirely. Know when to walk away. If a client consistently pays 90 days late, even though they agreed to 30, they’re not a good client. You’re essentially providing them with free financing. Sometimes the best business decision is to stop working with people who don’t respect your terms. 15% of the businesses surveyed in the SBC’s study said they had avoided doing business with specific customers on account of their payment behaviour. So you wouldn’t be the first, nor the last.

If the government follows through with the proposed reforms and withstands pressure from big business, we could see the most significant change to payment practices in a quarter-century. The UK could become a moral beacon of fair business payment practices.

But the real change will happen when enough business owners refuse to subsidise other companies’ cash flow with their own financial instability. The new legislation promises founders the legal backing they need to have these tough conversations, but founders need to actually have them in the first place. Perhaps that could become every small business owner’s New Year’s resolution for 2026. It would at least be a promising start in a year that already promises legislative change.

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