Late payments are inflicting a staggering annual cost of almost £11 billion on the UK economy, with research indicating this financial strain directly forces the closure of approximately 14,000 businesses every year. This alarming data emerges from a study commissioned by the Department for Business and Trade alongside the Office of the Small Business Commissioner.
The Scale of the Debt Burden
The comprehensive research also estimates that, at any given moment, British firms are collectively owed around £26 billion in overdue payments. This immense sum represents a critical cash flow blockage that stifles growth, innovation, and operational stability across the nation's commercial landscape.
Corporate Giants Imposing Extended Terms
Despite a renewed governmental push to clamp down on poor payment practices, experts reveal that some major corporate entities continue to impose payment terms of up to 120 days on their smaller suppliers. This practice persists even as the government consults on a robust package of measures designed to tackle late, protracted, and disputed business-to-business payments.
Government Proposals for Reform
The proposed governmental measures under consultation aim to create a fairer payment environment. Key proposals include:
- Tighter board-level scrutiny of payment practices within large companies.
- The introduction of mandatory statutory interest on invoices that are paid late.
- Establishing a 30-day deadline for disputing invoices to prevent prolonged delays.
- Granting extra enforcement powers to the Small Business Commissioner to ensure compliance.
Voices from the Frontline: SME Struggles
Astrid Davies, Founder and CEO at ADCL, has voiced strong criticism, identifying larger firms as the primary offenders. "The bigger the corporate entity, the longer they choose to hold onto their money before they settle what they owe," she stated. Davies shared a personal anecdote, revealing she had "heard of 120-day terms from some big companies" and had personally waited that long to receive payment from a "top 10 accounting firm."
Davies expressed a sentiment felt by many small and medium-sized enterprise (SME) owners, arguing they are treated as disposable. "SMEs are seen as the bottom of the pile by Govt and big business. No one cares, which is unwise given the role SMEs play in the UK economy. Ignore us at your peril," she warned.
The Power Imbalance and Reluctant Acceptance
Sam Kirk, Managing Director at Retford-based J-Flex Rubber Products, highlighted the coercive dynamic often at play. He explained that extended terms are frequently "dictated" by larger organisations, leaving smaller businesses feeling they have little choice but to acquiesce. "Late payments have a serious impact on SMEs like us," Kirk said. "While it is not exclusively the case, it is often larger organisations that dictate extended payment terms - this happened to us just last year."
He pointed to the added frustration of witnessing these large corporates post record profit levels. A significant part of the problem, Kirk noted, is that "smaller businesses feel they have little choice but to accept this practice as the norm, worried that any pushback could jeopardise future work." This fear creates a cycle where unfair practices become entrenched, to the severe detriment of the vital SME sector that forms the backbone of the UK economy.
