Late payments remain one of the most damaging issues facing UK small and medium-sized enterprises. The latest iwoca Q3 2025 SME Expert Index shows that 66 % of small-business owners expect the Autumn Budget and ongoing economic pressures to make late-payment conditions worse in the coming year. The Federation of Small Businesses reports that the average SME is still owed £22,000 in overdue invoices, with late payments costing the UK economy £2.5 billion annually in lost cashflow and productivity.
The problem is especially acute for small suppliers. Large companies routinely stretch payment terms to 60, 90, or even 120 days, treating SMEs as free credit facilities. A builder waiting for a £30,000 invoice from a national contractor can’t pay his own suppliers, staff, or tax bills on time. Many small firms report that cashflow problems caused by late payments are a leading cause of insolvency – one in four cases according to FSB research.
The Prompt Payment Code and existing legislation have failed. Voluntary sign-up rates among large firms are low, and enforcement is almost non-existent. SMEs are left chasing invoices, hiring debt collectors, or simply writing off the money.
The solution is clear, enforceable, and proven elsewhere:
- Make 30-day payment terms mandatory on all commercial contracts over £50,000, with automatic 8 % interest (base rate + 8 %) on any overdue amount from day 31.
- Penalties apply regardless of contract terms – no need for court action to claim interest.
- Businesses can opt out of the 30-day rule only if both parties agree in writing and the alternative is no longer than 60 days.
- Estimated benefit to SMEs: £2.5 billion in improved cashflow within the first full year of operation (FSB modelling), with minimal administrative cost to government.
This is not a radical idea. Spain, France, and Mexico have mandatory prompt-payment laws with interest penalties that have reduced average payment times by 40–50 %. The UK’s own Late Payment of Commercial Debts (Interest) Act 1998 already allows 8 % interest – we simply need to make it automatic and mandatory.
Stop letting big companies use small suppliers as banks. Give SMEs the cash they’ve earned when they’ve earned it.
The 1832 Club is fighting for these changes. The more members we have, the louder our voice in Westminster.
Join today from just £5/month or £40/year and help to support pro-SME candidates.
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