Can the government end the UK non-payment culture?

Late payments have long been brushed off as a nuisance, the result of red tape, misfiled invoices, or a stretched accounts department. But the government’s own reporting on the topic suggests otherwise: for many larger businesses, late payment is not an accident, it’s a strategy. 

Last week, the government issued its long-awaited crackdown, part of its Plan for Change, which promises to stamp out the practice and punish serial offenders. 

According to a September 2024 report by the Department for Business & Trade and IFF Research, “18% of surveyed businesses suggested that late payments are driven by their business customers purposefully paying late, treating it as a form of free finance”. In the goods sector, the figure is even higher, 30%. Among micro businesses, who are also more likely to be affected by late payments, it’s 24%. The practice isn’t limited to a few bad actors. It’s widespread, deliberate, and deeply embedded in some sectors. 

This tactic, holding on to supplier cash to improve one’s own working capital position, is not new or undocumented. But the government’s own data points to the scale of the problem. Strategic delays aren’t just a quirk of a broken system; they are a business model. 

The knock-on effect is severe. The same report found that 40% of businesses delay paying their own suppliers because they’ve been paid late themselves, creating a domino effect across the economy. 

Government says late payments costs the UK economy £11bn a year and shuts down 38 businesses every day. 

In response, the government has promised what it calls the “toughest late payment crackdown in the G7.” The proposed reforms include mandatory maximum payment terms, a 30-day invoice verification period, and legal powers for the Small Business Commissioner to conduct spot checks and issue fines against large firms who persistently delay payments. Audit committees will also be required to report payment performance at board level, aiming to raise accountability. 

But some industry leaders remain cautious. Jonathan Andrew, CEO of Bibby Financial Services, greeted the news as “long overdue” and said previous measures have “failed to have meaningful impact.” 

Bibby’s own research has found that 58% of SMEs believe the latest measures, such as the government’s Fair Payment Code, don’t go far enough to protect them. “This latest announcement is only the first step. Businesses need to see these plans convert into tangible action,” the CEO said. 

John Phillipou, SME Lending MD at Paragon Bank, and Chair of the Finance & Leasing Association (FLA), struck a more upbeat tone, describing the package as “a welcome step.” 

He added: “Persistent late payment practices undermine the financial health and growth potential of SMEs, costing the economy billions and stifling innovation and investment.” 

“We particularly welcome the emphasis on transparency and accountability, including the requirement for large companies to report payment practices in their Directors’ Reports. This will shine a light on poor performers and empower suppliers to make informed decisions,” Phillipou said. 

One creative solution comes from Andreas Mjelde, CEO and co-founder of B2B payments platform Two, who said he nearly lost his previous business due to late payments. While he welcomes fines, he says they won’t shift behaviour if the money goes to the government rather than the SMEs owed. Large corporations will just treat penalties as a cost of doing business, he said. 

Mjelde proposes a government-backed receivables fund that would pay SMEs immediately for overdue invoices, allowing HMRC to collect the debt, with interest and penalties, from the offending firm. “Owing money to an SME is easy to ignore. Owing money to HMRC? That’s a different story,” he said. “The government could leverage similar [receivables accounting] technology, integrating with existing accounting systems to make the process seamless.” 

The 2024 government/IFF research also uncovered a broader awareness gap: only 31% of businesses knew about mandatory payment reporting, and just 6% said they checked the data. That lack of visibility has helped poor payment behaviour go largely unchecked. 

And in some cases, payment terms themselves are part of the problem. Businesses chasing large contracts sometimes offer longer terms during negotiations to make their bids more attractive, turning payment delays into a form of competitive leverage. 

For the UK’s 5.5 million SMEs, the cost of inaction is already well understood. What remains to be seen is whether this latest crackdown can truly shift the balance of power, or whether the status quo will persist, invoice by overdue invoice.