Late payments continue to be an issue for small and medium-sized enterprises (SMEs) that just won’t go away.
For many SMEs, late payments are a threat to their cash flow and growth. In the worst cases, they lead businesses to close.
According to the UK Business and Trade Committee, around 38 small suppliers are estimated to close each day due to late payment practices.
The domino effect of late payments
Research from Bibby Financial Services (BFS), based on a survey of 1,000 SME owners and decision‑makers, shows just how damaging late payments have become.
In the past year, 42 per cent said delayed customer payments had stopped them from paying staff on time, while almost a quarter (24 per cent) were forced to pause recruitment.
When does a late payment become a dispute?
Not every overdue invoice leads to formal proceedings.
In many cases, payment can be secured through consistent follow-up.
The position changes when payment is persistently delayed, disputed without a clear basis or payment requests are ignored altogether.
At that stage, the issue moves beyond credit control and into dispute resolution.
Common examples where late payments can result in litigation include:
- A debtor raising issues about quality or scope after receiving the invoice
- Repeated broken payment promises
- Partial payments without agreement
- Cash flow issues on the debtor’s side leading to prioritisation of other creditors
Each of these situations may require a slightly different approach, but the aim is always to secure payment while managing costs and, where possible, preserving the underlying commercial relationship.
What options are available to recover late payments?
The first option is to send a polite email or try to call them to remind them of your payment request before escalating the situation.
This reminder may bring to light any issues the person or company has with the initial invoice, enabling you to resolve this with them directly.
Early intervention, backed by legal advice, can often resolve matters without the need to go to court.
Where an individual or company has not responded to your request for payment, you can issue a letter.
Your letter should state the basis of the claim, the amount due, a clear final deadline for payment and lay out the steps for what will happen if they continue not to pay what is due.
This is often enough of a warning for the debtor to see you are serious about taking this further if needed and to prompt settlement.
Alternative dispute resolution (ADR), such as mediation and negotiation, can be used to resolve disputes without damaging relationships.
This can be useful when there are disputes over the amount due or when the product or service does not meet their expectations, as it offers a more open forum for conversation and compromise.
If you have exhausted all other attempts to recover payments, this is when you might turn to the County Court as a last resort. The court is able to assess your claim and enforce action if the debtor still doesn’t pay.
Statutory demands for payment
Where debt is undisputed, the person or company owed money can request payment by making a statutory demand.
If the debtor is a company, they must owe at least £750 before they can be served, whereas an individual can owe at least £5,000.
A statutory demand formally warns the debtor that unless they pay or reach an agreement within 21 days, you may present a winding-up petition or a bankruptcy petition.
This method is not appropriate for cases where the debt is disputed by the debtor.
Government consultation to tackle poor payment practices
Recent announcements from the Government suggest a stricter approach is on the way to help tackle poor payment practices on a national scale.
New powers for the Small Business Commissioner will allow financial penalties to be issued against businesses that repeatedly pay late, alongside the introduction of an adjudication process to resolve disputes without going through the courts.
There are also plans for a 60-day cap on payment terms for large businesses dealing with smaller suppliers, as well as mandatory interest on late payments set at eight per cent above the Bank of England base rate.
These measures are expected to strengthen the position of SMEs, particularly where late payment has become routine rather than occasional.
We will continue to monitor developments around the proposed legislation and provide updates as they become available.
What to do if late payment is becoming a pattern for your company
If you are having recurring problems with customers or clients not paying invoices on time, it is worth reviewing:
- Your contract terms
- Your credit control process
- How quickly you escalate overdue invoices
- Whether you’re using the legal tools available to you
We offer a cost‑effective Debt Recovery Scheme that gives you access to specialist legal support without the high price tag.
We can prepare and send a formal letter to your debtor that meets all the necessary Practice Direction requirements, making it clear that the matter is being taken seriously.
If the debtor doesn’t respond or still refuses to pay, we can take the next step and issue legal proceedings on your behalf.
For more information about how Palmers can help, or to find out more about our Commercial Debt Recovery Scheme, please contact us.