For years, late payment has been one of those problems that everyone in business agrees needs fixing, but which has proved remarkably difficult to solve.
That may finally be changing.
The Commercial Payments Bill currently making its way through Parliament represents a significant shake-up in business payments, with its core principle being that businesses should not have to wait indefinitely to be paid for work they have already done.
For SMEs, that should be welcome news, but there is another side to the story. Small businesses are not only suppliers waiting to be paid – they are buyers too – and the same legislation designed to improve their cash flow will require them to look closely at how efficiently they pay others.
The late payment bill to the economy
The scale of late payment is difficult to ignore, with 44% of invoices from SMEs paid late, and estimated to cost the UK economy £11 billion annually.
For a large organisation, a late invoice can be an inconvenience. For a small business operating on tight margins, it can determine whether wages, rent or suppliers can be paid.
The Bill seeks to change that by introducing a maximum 60-day payment term, subject to some exemptions. It would also strengthen the Small Business Commissioner’s powers to tackle poor payment practices and disputes, while making statutory interest on late payments mandatory at 8% above the Bank of England’s base rate.
All of this – in theory – should provide SMEs with greater certainty and smoother operations. After all, if you know when the money is arriving, the piper can be paid on time.
The other side of the ledger
However, there is a potential sting in the tail.
Many SMEs still rely on fragmented financial processes. An invoice might arrive by email, require approval from several people and eventually find its way into a payment run – or not. But in a world with stronger statutory requirements, inefficient processes become a business risk.
This is why SMEs should not view the Bill simply as protection from bigger customers. They should see it as a prompt to examine their own payment infrastructure.
How quickly can an invoice be approved? Does the finance team know when every payment is due and how that measures against predicted outgoings? Or what happens when the person responsible for approving a payment is away?
These sound like operational details, but collectively they determine whether a business pays reliably.
Start preparing now
The good news is that businesses have time to prepare, and SMEs should use that breathing space.
The starting point should be an audit of the entire payment journey, from receiving an invoice through to payment, identifying manual bottlenecks and establishing clear ownership for approvals.
Technology has an obvious role. Modern payment platforms can provide better visibility over outgoing payments, reduce manual intervention and create clearer audit trails. But technology alone is not the answer; processes need to be designed around it.
Cash flow forecasting will become even more important as paying suppliers promptly is considerably easier when finance teams have an accurate picture of what is coming in and going out over the weeks ahead.
From burden to opportunity
There is a risk that new payment rules will be viewed as another compliance exercise, particularly by already stretched SME teams. However, there is a bigger opportunity to be seized.
Good payment practices strengthen supply chains, improve supplier relationships and give businesses a clearer understanding of their own finances. Most importantly, they create trust.
For SMEs, the Bill’s greatest benefit may be the cash flow certainty it creates but achieving that requires businesses to play both sides of the equation: expecting to be paid promptly while building the systems that allow them to do the same.
Businesses that start preparing now will not simply be ready for new legislation – they will have better payment processes, better financial visibility and ultimately, a stronger business.
Key takeaways
- The Commercial Payments Bill would introduce a maximum 60-day payment term, stronger powers for the Small Business Commissioner and mandatory statutory interest on late payments at 8% above base rate – giving SMEs greater certainty over when they will be paid.
- 44% of invoices from SMEs are paid late, costing the UK economy an estimated £11 billion annually – for small businesses on tight margins, a single late payment can create serious cash flow problems.
- SMEs are not only recipients of late payment – they are also payers. Many still rely on fragmented financial processes that make it difficult to pay suppliers reliably within new statutory deadlines.
- Businesses should audit their entire payment journey now – from receiving an invoice to making payment – and identify where delays, manual steps or approval bottlenecks could cause them to breach the new rules.
- Good payment practices strengthen supply chains, improve supplier relationships and give businesses a clearer picture of their financial position – the Bill’s greatest benefit may be the cash flow certainty it creates.
