It has been an ongoing battle when it comes to how best to tackle late payments and indeed reduce the volume of late payments we now see.
The latest intervention now sees the Government stepping up its efforts in a bid to crack down on the situation and change the culture of late payment being the norm.
In the UK alone, it is estimated that £11 billion is lost to the economy every year, with a staggering 50,000 small businesses forced to close (annually) due to poor payment practices.
Strangling everyday cash flow, halting growth, and wasting valuable resources and time, late payments are wreaking havoc on the economy.
As a professional B2B debt collection agency, we’re on hand for our customers when invoices become overdue, credit teams need additional support, or you need help in collecting outstanding and late payments.
With new changes now coming into effect, could late payments become a thing of the past?
Late payments legislation 2025
Late payment is a huge problem with most businesses, citing that they can go 90 to 120 days before receiving payment.
The impact this has is incredible: from restricting cash flow to the supplier missing payments to missed investment opportunities to an inability to take on additional work, and more.
Announced as new measures and ways to tackle late payments, the government has and continues to introduce payments law and update B2B payment regulations 2025.
For example, going forward, large companies that fail to pay suppliers on time could be removed from the Prompt Payment Code and, as a result, lose access to tendering for public sector contracts. The Small Business Commission will also be able to impose financial penalties on those persistent late payers.
Monitoring compliance and progress of the Commercial Debt Act is also now the responsibility of the new Payment and Cashflow Review Board, which is introducing stricter rules and tougher penalties for businesses paying suppliers, and we take a look at some of these changes in more detail below.
Late payments legislation
Changes to be aware of include:
- There is now a maximum payment term of 60 days, soon to be reduced further again to 45 (30-day payment terms will become standard for public sector suppliers).
- There is a strict 30-day invoice verification deadline (which gives a company the right to confirm or dispute an invoice), speeding up dispute resolution and reducing, if not eliminating, disputes being used as a delay tactic.
- Companies can now face fines, as well as spot checks, if late payments are regular.
- Larger companies must take accountability for payment practices at board level and disclose supplier payment performance. Indeed, finance directors can be held personally accountable for the treatment of suppliers in payment practices.
- Interest charges are now applied to all late invoices. The 1998 Act: Late Payment of Commercial Debts (Interest) includes specific guidance for small businesses stating the right to charge interest on all overdue invoices. This is typically set at 8% above the Bank of England’s base rate. What’s more, a fixed sum can also be included for commercial debt collection services.
For many small businesses that operate business-to-business, these new guidelines and changes to the law are a significant step in the right direction. Helping to level the playing field, reduce the financial pressure many small businesses face, and improve payment practices overall.
Benefits of reducing late payment
- Supports better management of cash flow
- Reduces wasted time and resources chasing outstanding amounts
- Fairer payment practices are in place, so everyone is treated fairly.
- It allows small businesses to invest, grow, and operate smoothly.
Helping you with late payment
It is vital that you have robust credit control procedures and processes in place to help you manage invoice issuing, collection, and chasing.
It is also essential that you remain in communication with suppliers and businesses at all times.
To help limit late payments, we would advise that all payment terms be agreed upon upfront, including due dates in all contracts and on all invoices. Make sure to communicate and include the consequences of late payment, i.e., interest charges, late payment fees, etc. Make sure to have procedures in place to chase outstanding invoices asap, and if the project is of a considerable size, ask for a percentage of the amount as a deposit.
Make sure to:
- Review your contracts and update as required
- Document everything and include all the information that may be required
- Understand your rights as supplier
- Use the Small Business Commission
- Work with a professional debt collection team.
Commercial debt collection
It is reported that late payment affects over half of all UK small businesses.
However, as we see the toughest crackdown on late payment coming into force, businesses can no longer hide poor payment practices.
Late payment is an old problem that drastically needs fixing, and this will all depend on commitment to the new changes and commitment to enforcement.
Helping you to recover your outstanding debts today, Direct Route.
Providing exceptional debt collection practices and services, we help companies keep their cash flow flowing.
Speak to a member of our team to find out more.
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