Despite new government strategies, late payment is continuing to choke SME cash flow and hold back sector growth. The costs of the practice are staggering. What can firms do to combat the problem and manage the impact on cash flow?

How much is late payment costing small firms?

Over six months on from the government’s pledge to finally stamp out the scourge of late payment, a new study from the Centre for Economics and Business Research show that these small businesses are owed an estimated £112 billion in overdue payments, equating to an eye-watering average £42,000 hole in small firm finances.

The new research paints a similar picture to other 2025 surveys. According to the Office of the Small Business Commissioner, if small business invoices were settled on time, the economy would benefit from £2.5 billion boost. The Office puts the number of SMEs affected by excessive payment delays at over 50%.

Similarly, according to research by Allstar, late payment is causing cash flow problems for over 40% of SMEs, with the average cost of the practice per firm put at £22,000 a year. And the consequences can be severe – it is estimated by the Federation of Small Businesses that late payment leads to 50,000 business closures per year.

Notably, the results of the recent studies call in question the impact of the government’s reforms aimed at combating late payment, including the introduction of the Fair Payment Code, that were announced in autumn 2024. According to a new study by Simply Business, 97% of small business owners have seen no reduction in late payments in the last six months.

Managing late payment impact and how alternative finance can help

Late payment continues to be a drag on SME development despite the efforts to address the issue. Such a state of affairs is an acute reminder that firms need to find their own solutions to the practice that is choking cash flow and development capacity.

And this is where alternative finance can help.

As small business lending from traditional sources remains subdued heading toward H2, services such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses in the current funding climate

In particular in relation to late payment, invoice finance is allowing firms to secure capital without putting key business relationships at risk. As much as 90% of an approved invoice can be advanced by a finance provider, with the remainder settled by the client.

Notably, the Growth Guarantee Scheme is providing a wide range of finance facilities to smaller firms, including invoice finance. This is further proof that alternative lenders are increasing filling the small business funding gap.

SME finance options for late payment hit on cash flow

It’s hardly surprising that the small business sector is calling on the government to expedite its reforms aimed at combating late payment. As recent data show, the impact of the practice on firms remains significant.

Whether the government takes such a step remains to be seen, but history suggests that small business shouldn’t rely too keenly on such development. As such, it is vital that key decision-makers position themselves as strongly as possible to deal with the issue and this includes being aware of alternative finance services, in particular invoice finance.

To find out more about A&T Business Associates services, contact Tony Hedger on 01903 602211 or tony.hedger@atbusinessassociates.co.uk.