New late payment reform is edging closer to becoming law, but there is concern that it won’t do enough to properly protect small businesses against the practice. Are small firms right to be worried and what other solutions can they turn to?

The latest government attempt to tackle late payment is certainly grabbing the headlines – there has been lots of coverage of how tough the new measures are and the impact that they are going to have. However, some business owners aren’t convinced it will solve the problem.

How late payment is hurting small businesses and the economy

What is not in doubt is the damage inflicted by late payment. There are plenty of figures to cite and they all tell the same story. According to Creditsafe, the number of overdue invoices jumped by 3% for Q1 to almost 17.5 million, with a staggering 1.5 million businesses dealing with outstanding payment. Tellingly, the study also showed a 9% increase in insolvencies compared to Q4 2025.

As for the costs involved, according to Bibby Financial Services, on average, SMEs are owed £66,770 in overdue invoices, a 10% rise compared to last year, while almost a third have written off nearly £30,000 as a result of failure to pay invoices or insolvency. FSB research paints an even starker picture, with the organisations claiming that late payment costs the economy £11 billion per year, with almost 70% of firms struggling with invoice payment delays in Q1.

This is what the government reform package is aimed at changing, but for small business owners, the proof will be in the pudding, not least as previous initiatives have had little meaningful impact. Notably, there is concern over the impact of reform on key business relationships and, indeed, what the reform will look like once they’ve been through the House of Lords, with many fearing the watering down of measures.

How alternative finance can help protect against late payment shocks

Scepticism from the small business sector regarding the latest late payment reforms is understandable given how past efforts have fallen flat. The nature and scope of the measures are grounds for optimism, but owners won’t pinning all their hopes on the new law, especially with any impact, should it arrive, unlikely to be seen before 2027.

Interestingly, it has been suggested that businesses should get ahead of the legislation by implementing some of the measures before the law is officially passed, such as with regard to charging interest on late payments. It will interesting to see how far this goes.

But what if firm don’t fancy being so bold? What else can owners do to protect cashflow and their businesses from late payment? This is where alternative finance can help.

In response to this squeeze on lending, alternative finance has become into a vital lifeline for small firms. Solutions such as invoice finance, asset finance and peer-to-peer lending are filling the funding gap, offering speed, affordability and tailored support.

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, and there has been recent calls for the initiative to be expanded significantly to help smaller businesses struggling to access finance. Such development offers further proof that alternative lenders are increasing filling the small business funding gap.

Small firm finance options for managing late payment pain

Given the upward pressure on fuel and energy prices, and the likelihood of a knock-on effect on other costs, finding a solution to late payment has rarely been so pressing for small businesses. The government’s reform package is a positive move, but scepticism remains around it, with the timeline for any roll out still unclear.

This is why it is imperative that key decision makers are aware of all the solutions for managing late payment, including the role 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.