“Some 42% of small busi­ness­es were paid late in the past year, near­ly dou­ble the lev­el record­ed through 2023 and 2024. The Small Busi­ness Com­mis­sion­er puts the mon­ey tied up in over­due invoic­es at £26 bil­lion at any one time.”

Four ways gov­ern­ment could ease the founder pay squeeze, Enter­prise Nation

Late pay­ment is becom­ing a real issue for the UK’s small busi­ness­es. With £26 bil­lion in over­due invoic­es due at any point in time, pay­ment terms are not being met, cash flow is suf­fer­ing, and busi­ness own­ers are strug­gling to find the cap­i­tal to keep trad­ing.

That’s the bad news. So, what’s the good news?

The Gov­ern­ment is lis­ten­ing, and leg­is­la­tion is on the way to tack­le the very real prob­lem of late pay­ments, over­due invoic­es and ris­ing aged debt.

What’s the Com­mer­cial Pay­ments Bill?

The Com­mer­cial Pay­ments Bill is a key ele­ment in the Government’s ongo­ing plan for small and medi­um-sized busi­ness­es.

Once it’s made law, the Bill will tack­le the prob­lem of late pay­ments by set­ting out key pil­lars to encour­age swift pay­ment and pro­tect busi­ness­es from late pay­ments.

The Bill will:

• Impose max­i­mum pay­ment terms of 60 days, with strict­ly lim­it­ed exemp­tions.
• Man­date inter­est on late pay­ments at 8% above the Bank of Eng­land base rate.
• Give sup­pli­ers the right to a fixed sum where a pur­chas­er rais­es a dis­pute late or with­out suf­fi­cient infor­ma­tion.
• Pro­hib­it the deduc­tion and with­hold­ing of reten­tion pay­ments under the terms of a con­struc­tion con­tract.

The Bill is a sol­id move towards fix­ing the prob­lem of endem­ic late pay­ments. But there’s cur­rent­ly no clear date for enact­ment, with the Bill unlike­ly to become law before 2027.

So, what can you do in the mean­time to reduce late pay­ments and resolve your aged debt? Let’s look at some proac­tive steps you can take to improve pay­ment times, boost cash col­lec­tion, and bring down your aged debt num­bers:

Auto­mate your invoic­ing and cred­it con­trol: Use account­ing soft­ware, like Xero, to issue instant e‑invoices with embed­ded pay­ment links and auto­mat­ed email reminders for over­due accounts.

Incen­tivise prompt set­tle­ment: Offer your cus­tomers small dis­counts (for exam­ple, a 2% dis­count for pay­ment with­in 7 days) for prompt pay­ment. And insist on deposits or mile­stone pay­ments on large projects, help­ing to bring cash in up front.

Run cred­it checks on new cus­tomers: Review the risk rat­ing and busi­ness cred­it scores of new clients using cred­it ref­er­ence agen­cies. This helps you set up appro­pri­ate cred­it lim­its and tai­lor bespoke cred­it terms before deliv­er­ing any goods or ser­vices.

Enforce your statu­to­ry inter­est rights: Charge statu­to­ry late pay­ment inter­est (cur­rent­ly 8% plus the Bank of Eng­land base rate) plus rea­son­able recov­ery costs under the cur­rent UK late pay­ment reg­u­la­tions.

Explore invoice financ­ing: Invoice dis­count­ing or fac­tor­ing is a fast, straight­for­ward way to release the val­ue of an unpaid invoice. This helps you access the cash and boost work­ing cap­i­tal, with­out wait­ing on the cus­tomer to meet your pay­ment terms.

If late pay­ment is becom­ing a headache for your busi­ness, come and talk to us. Russell+Russell can review your pay­ment terms, cash col­lec­tion, and cred­it con­trol process­es to make sure your cus­tomer pay­ments arrive when they should.