For a long time, late payment has been a problem that no one has been able solve, but is this all about to change? Reform is on its way and it is being heralded as the strictest yet. Is this the end of the late payment crisis? And if it isn’t, what can small firms do?

What’s the damage and what’s the plan to stop it?

The scale of the late payment problem for small businesses barely needs repeating, but the damage the practice inflicts, and the repeated failure to find an answer to it, keeps the issue in the headlines and firms on the backfoot.

Government research indicates that late payment costs the economy a whopping £11 billion a year, affecting 1.5 million businesses, with £26 billion owed at any one time. It contributes to the closure of around 4,000 firms every year. And the situation continues to worsen – according to a new study from GoCardless/FSB, almost a half of small business are seeing more late payments than 12 months ago. These are staggering figures, not least given the context of the current market climate and the headwinds that small firms are battling.

As for the government’s crackdown in 2026, which it has signalled as the toughest in the G7, much will be focused on strengthening the powers of the Small Business Commissioner to issues fines and act against large firms with poor payment records. A legislative overhaul is planned, large companies with poor payment risk will be disqualified from public procurement contracts, enforcement will be tougher and a new more rigorous fair payment code will be introduced.

How alternative finance can help with late payment management

Does the government finally means business? New figures from the Office of the Small Business Commissioner offer some encouragement. According to the office, almost £1 million has been recovered in overdue payments in the current financial year, with more than half secured in December alone.

However, for all the positive talk, it remains to be seen how much small business owners buy into the latest crusade against late payment. They seen and heard it all before, and the impact of these countless initiatives have always been the same – minimal, if that. As such, it is important that firms know how to safeguard themselves against the practice. And this is where alternative finance can help.

Small business lending from traditional sources remains subdued in 2026, with almost 40% of firms finding accessing affordable finance one of their biggest challenges. Against this backdrop, 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 businesses 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, offering further proof that alternative lenders are increasing filling the small business funding gap.

Small firm finance options for managing late payment in 2026

Small business owners will, of course, want the latest government mission to end late payment to succeed – it will remove a major source of stress and pressure on cash flow, at a critical time – but they won’t be counting their chickens. History warns them against that.

That’s why, with small firms in such a precarious position, it is essential that key decision-makers are able to position their businesses to manage the impact of late payment. This includes being aware of the role that invoice finance can play in dealing with the practice.

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