The government has released details of its plan to tackle late payment and it is promising the toughest crackdown on the practice yet. Will it work? Small business will be hoping so. But there are other ways to manage late payment costs and the impact on cash flow.

How is late payment hurting small firms and what are the new rules?

The talk is certainly tough when it comes to the new late payment rules. The promise of fines and investigations, a 60-day cap on payment terms, mandatory interest payments and beefed up powers for the Small Business Commissioner is grabbing attention and headlines.

Notably, the launch of the new plan came with a startling reminder of the damage that late payment inflicts on the small business sector. According to the government, the practice costs the UK economy £11 billion a year and leads to 38 businesses shutting their doors every day. Even if the consequences of late payment aren’t terminal, they still come with a huge cost – 86 hours per year are wasted chasing invoices, equal to an astonishing 133 million staff hours.

These figures underline the urgency behind finding a solution to late payment, even more so with recent reports revealing that the situation is continuing to get worse, with the incidence of late payment rising for almost half of small businesses in the last year. Any block to economic recovery will only make the pain more acute.

The new reform package undeniably has lead in its pencil – at least at the moment. And this is the rub. The process of turning the proposal into legislation is not quick and, critically, the details of the new rules are subject to change as it passes through primary and secondary legislation periods.

How alternative lenders can help with managing late payment costs

For all the positives in the new plan, based on previous government-led efforts to address the late payment issue, small businesses won’t be hanging out the bunting just yet. Many owners will have been down this road before, with the destination in the past almost always a dead end. As such, it is important that firms can safeguard themselves against the practice. And this is where alternative finance can help.

Small business lending from traditional sources remains subdued as Q2 gets under way, 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 firms 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 business finance options for dealing with late payment in 2026

The new government plan to combat late payment undoubtedly raises hope. It is vital that the reform keeps the teeth that the current draft has, but there are no guarantees, and small business owners are well aware of this. They won’t be holding their breath.

That’s why, with a new period of economic uncertainty looming, it is important that key decision-makers are able to position their firms to manage the impact of late payment. This includes being aware how invoice finance can help deal with the practice.

To find out more about A&T Business Associates services, contact Steve Bowles on 01903 602211 or steve.bowles@atbusinessassociates.co.uk.