According to recent data, the issue of late payments continues to be a major challenge for UK small businesses. Between June 2023 and Jun 2024, nearly 49.3% of invoices sent by small businesses were paid late.
This marks an increase from 43% the previous year and highlights a worsening trend impacting cash flow across the small business sector. The Isle of Man and East Central London are among the areas with the highest late payment rates, exceeding 70%, while Ipswich has the lowest at around 21.5%.
Financial Impact on SMEs and the Economy
The cost of late payments is significant: on average, UK SMEs are owed £22,000 in overdue payments, translating to an economic loss of £2.5 billion annually. This cash flow strain is a severe issue for smaller businesses, many of which do not have the resources to manage prolonged payment delays.
Government Measures and Advocacy
To address this ongoing issue, the government has implemented new measures under the Prompt Payment & Cash Flow Review. These include:
- Stricter Reporting Obligations: Larger firms must report payment practices in annual disclosures, promoting transparency.
- Enhanced Enforcement: Increased penalties for non-compliant businesses, including potential fines for directors of offending companies.
- Prompt Payment Code Update: A revised code requiring prompt payment standards, which offers tiers for companies based on adherence to payment timeframes.
How Invoice Finance Offers Relief
Given the persistent issue of late payments, alternative finance options such as invoice finance have become vital for SMEs. Invoice finance allows businesses to access cash tied up in unpaid invoices, offering up to 90% of the invoice value within 24 hours. This funding solutions stable cash flow and reduces dependency on timely payments from clients.
For further information on how invoice finance can benefit your business, check out our benefits of invoice finance blog, and visit our FAQ page for answers to common questions.
