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Saturday, Jul 26, 2025

UK’s late payment ‘crisis’ risks future of 440,000 small firms

UK’s late payment ‘crisis’ risks future of 440,000 small firms

Federation of Small Businesses urges ministers to improve payment issue that has long dogged the sector
More than 440,000 small firms could be forced out of business by the late payment “crisis”, according to the Federation of Small Businesses, which has called for urgent government intervention to improve the way firms are paid.

Almost a third of small businesses (30%) surveyed told the FSB that they had seen the late payment of invoices increase over the last three months, with at least 8% warning that the problem has become so bad that it was threatening the viability of their business.

For years the problem of late payments – often by big FTSE firms – has dogged the small business sector. Firms are often forced to pay their suppliers, wages and other bills on time, but face long waits to be paid themselves.

The FSB said more than 400,000 small firms have shut down since the start of the pandemic for various reasons, and that the future of a similar number is now threatened by this problem alone.

“Late payment was destroying thousands of small businesses even before the pandemic hit – the pandemic has made matters worse,” said the FSB national chair, Mike Cherry. “In the past, the government has rightly identified greater board accountability as key to spurring change in this area, but delivery has been slow.”

Cherry said small firms, which employ more than 13 million workers in the UK, are facing battles on almost every front, including new customs checks on imports from the EU and a looming energy cost crisis.

“Today, it’s a fresh wave of admin for importers and exporters – in three months’ time it will be a hike to the jobs tax, that is national insurance contributions, a rise in dividend taxation, business rates bills and an increase in the national living wage. On top of that, operating costs are surging – many will soon be trying to strike energy deals without the clout of big corporates or the protections afforded to consumers.”

The FSB has said every big business and government organisation should be abiding by the prompt payment code arguing that 30-day payment terms should be “the norm for those who are committed to environmental, social and governance best practice”.

It wants every big UK corporation to have a non-executive director on its board with direct responsibility for payment culture.

The other findings of the FSB survey of more than 1,200 members will concern ministers. More small firms now expect their performance to worsen over the coming three months than expect an improvement. Pessimism is especially pronounced in the retail, accommodation and food industries, as many UK consumers adopted self-imposed lockdowns in the face of Omicron.

Pictures of deserted high streets in the run-up to Christmas, fears over spiralling energy costs and concerns that staff will not be able return to work on Tuesday have not helped matters. Spiralling energy bills have already forced some firms to close. Businesses are not protected by the price cap imposed by the regulator Ofgem.

Companies importing goods from the EU also now face new, onerous paperwork. Regulations require businesses (in most cases those receiving goods in the UK, but in some those sending them to the UK) to notify the customs authorities of precisely what is being sent to Great Britain from the EU, and from where. The rules were in effect waived throughout 2021 but now apply for the first time.

A government spokesperson said: “The government is making significant reforms to help small businesses get paid on time, including halving the payment period in the prompt payment code and consulting on fines and other new powers for the Small Business Commissioner.”

“There is plenty of support available to ensure small businesses are well positioned to comply with UK border processes, including one-to-one advice through the Export Support Service.”
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