Chasing overdue invoices isn’t just frustrating—it can feel like a full-time job. If you’ve faced this challenge, you’re far from alone. Late payment remains one of the most pressing issues for small and medium-sized enterprises (SMEs) in the UK.

For independent HR and People professionals running your own business, the stakes are particularly high. Late payments don’t just disrupt cash flow—they can stall your plans, limit growth, and even put your business at risk. The numbers speak for themselves: SMEs lose an average of £22,000 annually due to late payments, with around 50,000 businesses closing their doors each year as a result.

But there’s some good news. The UK government has announced new measures aimed at tackling this pervasive problem. While it won’t solve everything, it’s a step in the right direction for fairer and more transparent business practices.

 

Why late payments Hit so Hard

When you deliver a great service, waiting endlessly to get paid you can feel like an insult to all the effort you’ve put in. And it’s not just the principle—there are real consequences. Late payments can delay key investments, disrupt payroll, and even leave you scrambling to pay your own suppliers on time.

It’s an issue that affects millions of SMEs. Research from the Federation of Small Businesses (FSB) shows that over half of UK small businesses experience late payments every quarter. That’s time and energy wasted chasing money that should already be in their accounts. Some are even forced to take on debt to cover shortfalls.

For many of us, the knock-on effects can be overwhelming. It’s not just about managing cash flow; it’s about staying resilient in the face of challenges that often feel out of your control.

 

What’s Changing

The new measures focus on making larger companies more accountable for how they treat their smaller suppliers. Here’s a breakdown of the key changes:

More transparency in reporting

Large businesses with over 500 employees will now need to include their payment practices in their annual reports. This isn’t just a tick-box exercise; it’s designed to give SMEs a clearer picture of who they’re dealing with, making it easier to identify reliable clients.

Tougher enforcement

Existing rules on payment reporting haven’t always been enforced effectively, but that’s about to change. The government plans to crack down on companies that don’t comply, with directors facing criminal penalties and potentially unlimited fines for repeated failures.

The new Fair Payment Code

Replacing the old Prompt Payment Code, the new Fair Payment Code raises the standard for responsible payment practices. Businesses will now be graded:

• Gold: 95% of all suppliers paid within 30 days.
• Silver: 95% of small business suppliers paid within 30 days, with others paid within 60 days.
• Bronze: 95% of suppliers paid within 60 days.

This tiered approach rewards businesses that pay promptly, giving SMEs a better sense of who’s worth working with.

Looking ahead: a consultation

The government is also launching a consultation to explore further ways to combat late payments, with the aim of creating a more supportive environment for SMEs and self-employed professionals.

 

Will small businesses benefit?

These changes are a positive step, particularly for those of us who work with larger clients. Increased transparency and tougher penalties should make it easier to avoid problem payers and protect your cash flow.

That said, it’s important to acknowledge the limitations. The new measures don’t directly address late payment issues between small businesses. For independent HR business owners, it’s still vital to stay proactive in managing your payment terms and chasing invoices.

 

Steps you can take today

While we wait to see how these changes unfold, there are practical steps you can take now to protect your business:

Review Your Payment Terms: Make sure they’re clear, concise, and communicated upfront to avoid confusion later.

Follow Up Promptly: Don’t wait too long to chase overdue invoices—send polite but firm reminders as soon as payments are late.

Use the Small Business Commissioner: Reporting issues not only helps you but also contributes to a larger effort to combat late payments.

Encourage Fair Payment Practices: If you work with larger businesses, ask them to sign up for the Fair Payment Code.

These actions, combined with the government’s initiatives, can help create a more equitable environment where small businesses can thrive without the shadow of delayed payments. For independent HR professionals, that means more time to focus on your clients and less time worrying about cash flow.

Author: Charlotte Allfrey | HRi