It’s over six months since the government launched its major late payment support package for small businesses, but firms are still suffering because of unpaid invoices. How can these business manage the problem and protect their cash flow?

What impact is the latest late payment reform package having?

In September 2024, a series of reforms was unveiled with the goal of tackling late payments and their impact on the small business sector. Measures included a New Fair Payment Code and new laws to hold larger firms to account. However, more than half a year later and the practice remains as damaging as ever.

According to research from GoCardless, the problem is getting worse. Half of the firms interviewed for the study said that they receive payments up to 60 days late, with a third revealing that the practice affects their ability to pay their own suppliers’ bills. Almost 20% said that late invoice payment causes problems with paying their employees.

Figures from Intuit Quickbooks paint a similar picture: late payment costs small businesses an average of £22,000 a year, with a staggering 56 million hours of productivity lost to managing the fallout. The Federation of Small Businesses puts the number of small firms closing because of the issue at 50,000 every year.

Clearly, small firms are struggling to push back against the practice. According to the GoCardless, over a half of businesses forfeit late payments as much as 10 times per year to avoid losing time and money to chasing unpaid invoices, while almost two third of firms said that the practice was stopping their business achieving its full potential. Notably, if small firms invoices were settled on time, it is estimated by the Office of the Small Business Commissioner that the economy would get a £2.5 billion annual boost.

Managing late payment in 2025 and how alternative finance can help

Small business owners hardly need reminding about government promises about tackling late payment: the launch of the new reform package in 2024 fuelled optimism but the problem has remained resolutely unresolved for more than a decade.

The need for firms to find their own solutions remains as critical as ever. And when it comes to these solutions, one is alternative finance.

Services such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses in the current funding climate (with 65% more SMEs experiencing difficulty in accessing finance from high-street banks).

In particular, invoice finance is allowing firms to secure capital without putting key business relationships at risk. As much as 90% of an approved invoice can be advanced by a finance provider, with the remainder settled by the client.

Notably, the Growth Guarantee Scheme is providing a wide range of finance facilities to smaller firms, including invoice finance. This is further proof that alternative lenders are increasing filling the small business funding gap.

Small firm finance options for dealing with overdue invoices

The increase in NICs may have stolen the headlines when it comes to small business news, but late payment remains a particularly sharp thorn in the side of the sector. So far, the new government has done little to suggest it can meaningfully tackle the problem.

This is why it is vital that key decision-makers put themselves in a strong a position as possible when it comes to dealing with the impact of late payment on cash flow and the future of their businesses. This includes being aware of alternative finance services and in particular invoice finance.

To find out more about A&T Business Associates services, contact Tony Hedger on 01903 602211 or tony.hedger@atbusinessassociates.co.uk.