Late payments can significantly impact businesses beyond causing frustration; they are linked to a substantial number of business failures each year.

According to data from Funding Circle, an estimated 14,000 UK businesses succumb annually due to the repercussions of delayed payments. This translates to about 38 company closures daily in the UK, where around 280,000 businesses shut down in 2024, with late payments being a factor in one in every 20 cases.

At any given moment, British companies are collectively owed approximately £26 billion in overdue invoices. The typical affected business is awaiting approximately £17,000—equivalent to roughly $20,000—in unpaid bills, and small firms especially suffer from these financial strains.

“Late payments consistently rank among the most significant reasons for small businesses failing,” stated Hugh Thomas, Lead Analyst of Commercial and Enterprise at Javelin Strategy & Research. “This is observed across all developed economies with available data.”

Highlighting Delinquent Payers

To tackle this issue, the UK government has introduced regulatory measures. The Reporting on Payment Practices and Performance Regulations 2017 mandates larger enterprises to disclose their payment practices.

Companies must report the percentage of invoices paid within 30 or 60 days alongside their average payment durations. This data is also included in directors’ reports, similar to how disclosure requirements are managed by the U.S. Securities and Exchange Commission, providing greater visibility to stakeholders.

“Our January study indicates that these regulations have had a positive effect, leading to a reduction in UK payment delays overall,” said Thomas. “However, the trend towards faster payments and better compliance is inconsistent; with 30% to 40% of UK firms paying more slowly now than when the legislation was introduced. It is hoped that continued efforts to identify and penalize non-compliant payers will address these concerns highlighted by Funding Circle.”

Advantages of Greater Transparency

Enhanced transparency can empower suppliers in making more informed business decisions. Over time, this could bolster not only small businesses but also the overall UK economy.

Funding Circle’s analysis suggests that a mere 10% reduction in poor payment practices could yield nearly £1 billion in annual economic benefits. Improved payment speeds might result in fewer company closures and promote stronger investment and productivity growth.