Too polite to chase? Late payments sink 38 businesses a day

The reality is that it is anything but.

Labour rowed back on plans to reduce the maximum payment term from 60 days to 45 days over the next five years under pressure from big business, although it did give new enforcement powers to the Small Business Commissioner, Emma Jones.

A mandatory interest at 8 per cent above the Bank of England base rate will apply to overdue invoices. Boards are now required to disclose payment performance in annual reports.

Terry Corby made a compelling case in this publication for this exact kind of enforcement ahead of the announcement. He named and shamed the worst offenders, but pointed out that greater transparency alone won’t fix the broken enforcement system that lets many of Britain’s biggest businesses go scot-free.

But it was the maximum payment term reduction that would really have moved the needle for small businesses, 38 of which go out of business every day due to late payments and a problem that costs the economy £11 billion a year.

Lobbying from Britain’s largest businesses, who complained it would squeeze their working capital, was enough for the government to come to heel.

Successive governments have been passing this particular hot potato for a generation, and when it came to the crunch, big business still won. Keeping the 60-day cap is nothing other than a watered-down concession.

That climbdown is emblematic of the power imbalance at the heart of the problem. Large buyers dictate payment terms to small suppliers, and now, it turns out, they can also dictate the legislation meant to protect them.

Labour’s retreat reveals that the problem runs deeper. It reflects an inherent reluctance among Brits to ask for money.

Asking to be paid feels somehow impolite, especially when the person you’re chasing is also your biggest client. Most small business owners have rehearsed the conversation in their head and decided against having it. The new legislation gives small business owners the legal backing to charge interest on overdue invoices. But a legal right you’re too uncomfortable to exercise isn’t much of a right at all.

The numbers bear this out. A survey of over 2,000 small businesses, published by GoCardless and commissioned through the Federation of Small Businesses, showed that half of SMBs consider late payments an ‘inevitable cost of doing business’ and a third of them feel they have little to no control over managing them. More than half said they write off late payments up to ten times a year simply to avoid the hassle of chasing. It’s a cultural failing when late payments are treated as standard business practice rather than as business misconduct. If anything, it’s resignation dressed up as pragmatism.

Those who do try to get their money have little to show for it. Research conducted by the SBC last year suggests that business owners spend an average of 86 hours chasing debt. At any given time, businesses in this country are owed an estimated £26 billion in late payments, averaging £17,000 per affected business. That’s time and money not spent hiring, selling, or growing.

Meanwhile, the economic backdrop is worsening. The International Monetary Fund warned that Britain faces the biggest economic shock in the G7 this year, driven by higher energy costs from the conflict in Iran. When the broader economy tightens, larger firms are more tempted to stretch payment terms to protect their own balance sheets, leaving smaller businesses in the lurch. Small businesses, already struggling with rising costs, absorb the strain at both ends.

And then there’s the emotional toll that doesn’t show up in the data. A small business owner who can’t sleep at night, checking their bank account, wondering whether they can cover the mortgage this month.

No law can make a supplier feel comfortable chasing their biggest client. But the new reforms do give them something to point to beyond an awkward phone call pleading for payment. It may not be much, but for the tens of thousands of small business owners currently writing off what they’re owed, it could be the difference between staying open and closing their doors.

Tom Lamb is the Head of UK for the embedded invoice financing platform Aria. With over a decade of experience in fintech, Tom’s expertise spans B2B payments, embedded finance, and platform economies across European markets.

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Tom Lamb is the Head of UK for the embedded invoice financing platform Aria.

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