The impact of late payments and
unfair payment terms on SMEs
The time taken to pay an invoice matters. Not only does it have implications for the cashflow of the company, but it can also serve as a warning of the financial health of the paying company itself
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Late payments pose a significant challenge for UK SMEs by disrupting cash flow and threatening their survival. Many SMEs accept extended payment terms — sometimes as long as 360 days — due to the fear of losing contracts with larger companies. While these terms mean that a payment is not ‘late’ by legal standards, they are unfair, leaving smaller businesses unable to pay their own suppliers, invest in growth, or cover employee wages. The resulting stress can impact not only financial stability but also mental health and business relationships.
Late payments and unfair payment terms force SMEs to operate on slim margins, and the uncertainty around payment schedules adds anxiety. Delays can strain relationships with their own suppliers, leading to a ripple effect of financial instability throughout the supply chain. Moreover, business owners are unable to forecast their finances, which can lead to missed opportunities and hindered expansion.
Despite this feeling like the status quo for many of our alumni, you can mitigate the impact of late payments by negotiating better terms. Small Business Commissioner Liz Barclay emphasises that many small businesses hesitate to negotiate or question lengthy payment terms, assuming it might harm their relationship with larger clients.
However, communication is key — asking for shorter terms upfront and ensuring invoices are accurate and compliant with client requirements can make a difference. ‘Businesses just need to bite the bullet and ask the question. It’s better for everyone’, says Liz.
SMEs should feel empowered to address the imbalance of power by pushing for fairer terms. Clear contracts, timely invoicing, and proactive negotiations can help protect cash flow and strengthen their business’s resilience in a competitive market. By securing timely payments, SMEs can focus on growth, innovation, and long-term success.
The Office for the Small Business Commissioner offer a free resolution service for small businesses who have been affected by late payments and unfair payment terms. But you can also take pre-emptive measures to ensure you’re working with the right type of client. Good Business Pays creates a list annually of those who pay their suppliers the fastest and who pays the slowest. For more information about the support SMEs can access on late payments and unfair payment terms, visit the Help to Grow: Management Course late payments resource page.
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