Skip to main content
By Greg Bell, CEO, Skipton Business Finance
The Government’s announcement of the toughest late payment laws in a generation marks a pivotal moment for the UK’s small and medium-sized enterprises (SMEs).
For too long, late payments have been the silent killer of promising businesses - eroding cashflow, stifling investment, and, in the worst cases, forcing otherwise viable companies to close their doors.
The statistics are stark: £11 billion lost to the UK economy every year and 38 businesses shutting down daily because they weren’t paid on time.
As someone who has spent decades working alongside SMEs, I welcome the Government’s focus on tackling this issue. But if we’re serious about ending the late payment culture once and for all, legislation alone won’t be enough. We need a cultural shift in how businesses treat their suppliers - and a more strategic approach to cashflow management.
The good news: real teeth for the Small Business Commissioner
The proposed reforms will give the Small Business Commissioner unprecedented powers:
- The ability to levy fines running into the millions against persistent late payers.
- Mandatory payment terms of 60 days, reducing to 45 days.
- A 30-day invoice verification period to speed up dispute resolution.
- Legal obligations for audit committees to scrutinise payment practices.
- Automatic interest charges for late payments.
This is a major step forward. For years, SMEs have been told that late payment is simply “part of doing business” - an unacceptable narrative that has shifted the burden of poor cashflow management onto the smallest, most vulnerable suppliers.
If enforced effectively, these reforms could send a clear message: paying late is no longer an option.
The challenge: turning policy into practice
However, anyone who works with SMEs knows that the gap between policy and practice can be wide.
Late payment legislation already exists - but enforcement has been patchy, and too often, SMEs have been reluctant to challenge large customers for fear of damaging the relationship.
The Government’s reforms will only succeed if:
- Enforcement is swift, visible, and fair. SMEs need to see examples of large firms being held accountable.
- The reporting process is simple. If pursuing a late payment takes weeks of paperwork, many small business owners simply won’t have the bandwidth.
- There is transparency. Publicly naming and shaming chronic late payers could create a reputational incentive to improve.
At Skipton Business Finance, we see first-hand the human side of these delays - the entrepreneur who can’t take on new staff because they’re still waiting for last quarter’s invoices to clear, or the supplier forced to turn down a growth opportunity because too much working capital is tied up in unpaid bills.
Why cashflow still needs a Plan B
While legislative reform is welcome, SMEs cannot afford to pin their entire cashflow strategy on the goodwill (or legal compliance) of their customers.
Even with stricter payment terms, there will still be disputes, administrative delays, and unforeseen circumstances that hold up payments.
That’s why proactive cashflow management - including access to flexible finance - is essential.
Solutions such as invoice factoring and invoice discounting can bridge the gap between delivering goods or services and getting paid, giving SMEs the certainty they need to invest, hire, and grow.
In our experience:
- Businesses that build contingency finance into their strategy weather late payments far better than those that rely solely on timely settlement.
- Having a finance partner who understands your business can provide not only funding, but also credit control support, reducing the administrative burden on your team.
The cultural shift we need
Legislation can set the framework, but it’s business culture that will decide whether the late payment crisis truly ends.
Large corporates must recognise that SMEs are not just suppliers - they are the backbone of their supply chain, employing 60% of the UK’s workforce and generating £2.8 trillion in turnover.
Fair payment should be viewed not as a compliance requirement but as a competitive advantage.
- Suppliers who are paid promptly are more likely to prioritise orders, maintain quality, and remain loyal during challenging periods.
- Prompt payment improves the health of the wider economy, which ultimately benefits the larger customer base of those same corporates.
We need to move beyond the outdated mindset that holding onto cash at the expense of suppliers is a sound business strategy. It’s short-term thinking that undermines long-term resilience.
Access to finance: The other side of the coin
The Government’s £4 billion finance boost, including £1 billion for Start-Up Loans and £3 billion to expand the British Business Bank’s ENABLE programme, is also a significant development.
For many SMEs, late payment is just one part of a wider challenge: securing the funding needed to take the next step.
But access to finance is not simply about availability - it’s about suitability. Start-ups and growing SMEs often need funding that:
- Is tailored to their sector and business model.
- Flexes in line with trading patterns.
- Comes with a partner who can provide guidance, not just capital.
This is where specialist lenders, including invoice finance providers, play a vital role.
By unlocking the value tied up in unpaid invoices, we help SMEs turn outstanding sales into immediate working capital — without taking on additional debt.
Practical steps SMEs can take now
While we wait for more details of the proposed measures, there are steps SMEs can take immediately to protect themselves from late payment risk:
- Know your customers. Carry out credit checks and set realistic payment terms from the outset.
- Invoice promptly and accurately. Errors are a common cause of payment delays.
- Follow up early. Don’t wait until a payment is weeks overdue to chase.
- Use technology. Digital invoicing and automated reminders can reduce admin time.
- Have a finance contingency. Whether it’s a revolving credit facility, invoice finance, or another flexible solution, ensure you have backup cashflow in place.
Our commitment at Skipton Business Finance
At Skipton Business Finance, we have always believed that SMEs deserve more than just funding - they deserve a partner who understands the pressures they face and the opportunities they want to seize.
We support SMEs across the UK by:
- Providing flexible invoice factoring and invoice discounting facilities.
- Offering credit control as part of our service, helping clients get paid faster.
- Taking a personal approach — our clients know their relationship managers by name, and we know their businesses inside out.
As the late payment reforms roll out, we’ll continue to work alongside SMEs to help them turn these new rules into real-world benefits - ensuring they not only survive but thrive in the months and years ahead.
The Government’s Small Business Plan is a welcome acknowledgement of the vital role SMEs play in driving the UK economy. Tackling late payments head-on is long overdue, and the proposed reforms have the potential to be game-changing.
But laws alone won’t fix the problem.
We need enforcement, cultural change, and critically, a mindset among SMEs that cashflow should always have a Plan B.
If we can achieve that, we won’t just reduce the £11 billion cost of late payments. We’ll unleash the full potential of the UK’s small businesses - and in doing so, strengthen the economic foundation for everyone.