£112 Billion Unpaid: Why Transparency Will Not Fix Late Payment

Small businesses in the UK are owed an estimated £112 billion in unpaid invoices. Nearly half of all invoices are paid late. Around 38 small suppliers close every day, with late payment cited as a key factor.

MPs have warned that SMEs are facing pressures comparable to the pandemic — rising energy costs, higher employer National Insurance, retail crime, tax complexity and subdued demand. But among all these pressures, one issue stands out because it directly affects survival:

Late payment.

Unlike during the pandemic, there is no emergency support framework. SMEs are expected to absorb the strain. And yet the policy response continues to focus on one familiar solution: more transparency.

Transparency alone will not fix late payment.

Late Payment Is Not an Administrative Problem

It is not caused by a lack of reporting.
It is not caused by confusion about terms.
It is not caused by accounting errors.

Late payment persists because it works.

For many organisations, extending payment terms or delaying settlement functions as a low-cost working capital strategy. It improves their cash position. It strengthens their balance sheet. It reduces their need to borrow.

And critically — it carries little financial consequence.

The Economic Reality

If borrowing costs 6% to 8% per year, but paying suppliers late costs nothing, the calculation is straightforward.

Finance directors are incentivised to delay.

Transparency reports do not alter that calculation. Publishing payment performance does not materially change behaviour if the financial incentive remains intact.

Until paying late becomes more expensive than alternative forms of financing, the practice will continue.

This is not a moral observation. It is an economic one.

SMEs Are Acting as Lenders of Last Resort

When invoices are delayed:

• Small businesses fund payroll from reserves.
• Directors defer investment.
• Growth plans are paused.
• Credit lines are stretched.
• Risk of insolvency rises.

SMEs become involuntary lenders — providing interest-free credit to customers who may be significantly larger than themselves.

In a low-growth environment, where GDP is barely expanding and business investment is shrinking, this transfer of risk becomes even more dangerous.

Cashflow pressure accelerates quickly. And once confidence erodes, recovery becomes harder.

Why Transparency Has Limited Impact

Payment reporting requirements already exist.
Large firms already publish data.
Late payment remains widespread.

Why?

Because reputational discomfort is weaker than financial benefit.

Without enforceable consequences, reporting mechanisms create visibility — not behavioural change.

The issue is not awareness. It is incentive.

What Would Actually Change Behaviour?

The UK’s statutory late payment compensation framework was set in 1998.

Costs have changed dramatically since then.
Administrative burdens have increased.
The real economic impact of delayed payment has intensified.

CPA has long argued that statutory compensation levels should be increased to reflect today’s commercial reality, and that enforcement should be simplified — if not made automatic — to ensure that the rules genuinely influence behaviour.

If compensation were meaningful, predictable and easier to apply, the cost calculation would shift.

So increase the compensation levels from £40 for debts under a £1000, £70 for debts from £1000 to £9999 and £100 for debts over £10,000 to levels that actually compensate for the costs and inconvenience of late payment and disincentivise late payers.

Toughen the language to say it is due and payable on all late payments and tighten up payment terms so big companies can’t impose ridiculous payment terms.

And when the cost shifts, behaviour follows.

A Structural Reform: Put Late Payment On The Balance Sheet

If policymakers genuinely want to change behaviour, late payment must become visible, measurable and financially consequential.

CPA believes there is a stronger mechanism available:

Companies that have paid invoices late over the previous six years — the statutory limitation period — should be required to calculate the interest and statutory compensation due and recognise a provision for that liability in their accounts.

The provision would:

• Sit on the balance sheet as a measurable liability.
• Flow through the profit and loss account.
• Not be tax deductible.

In short, late payment would no longer be invisible.

Why This Would Change Behaviour

At present, paying late improves reported cash flow with little accounting consequence.

Under this reform:

• Directors would need to quantify historic exposure.
• Auditors would review the calculation.
• Shareholders would see the liability.
• Profit would be reduced accordingly.

Finance directors respond to balance sheet risk and profit impact. When late payment creates a visible liability, it stops being a convenient working capital tool.

Addressing the Common Objections

1️⃣ “It creates administrative burden.”

Not materially.

Every company already records invoice values, due dates and payment dates. A simple spreadsheet can calculate statutory interest and compensation automatically.

And if businesses wish to avoid that administrative burden, there is a straightforward solution:

Pay on time.

In fact, the administrative exercise itself reinforces the policy objective. When organisations must calculate the cost of late payment, they internalise it.

2️⃣ “It is retrospective.”

The six-year period mirrors the statutory limitation framework that already applies to contractual claims.

In practice, suppliers rarely pursue statutory compensation while they are still trading with a customer. The commercial relationship often suppresses enforcement.

This reform would acknowledge that the liability does not disappear simply because it is not immediately demanded. It continues to exist.

It’s a reminder that as soon as the relationship ends, suppliers can ask to be paid that compensation.

That continuity is precisely what changes behaviour.

3️⃣ “It would create cash flow strain.”

No immediate cash outflow is required. It is a provision, not a payment.

However, if the resulting liability makes it marginally harder to raise capital or affects balance sheet strength, that is not an unintended consequence — it is the mechanism through which incentives shift.

If late payment increases perceived risk, behaviour adjusts.

4️⃣ “It is too complex.”

It is not.

Each invoice already contains:

• Value
• Due date
• Payment date

Statutory interest is formulaic. Compensation levels are defined. Calculation is mechanical.

Complexity is often cited when consequences are uncomfortable.

Why Reform Must Be Structural

Transparency creates visibility.

But visibility without consequence does not change economic behaviour.

Late payment persists because it is financially advantageous. Reform must alter that advantage.

If late payment becomes a measurable liability that reduces reported profit and sits on the balance sheet, boardrooms will pay attention.

And when boardrooms pay attention, behaviour changes.

The Principle Remains Simple

Late payment is not primarily a cultural issue.
It is an incentive issue.

Incentives change when the cost changes.

Until then, SMEs will continue to carry the burden.

Late Payment in a Fragile Economy

This debate is unfolding at a delicate moment.

• GDP growth has slowed.
• Business investment is contracting.
• Insolvencies are rising.
• Consumer demand remains uneven.

In such conditions, delayed payment is not a nuisance — it is a destabiliser.

More businesses fail through poor cashflow than through lack of profitability. A company can appear profitable on paper while struggling to meet short-term obligations.

When margins are tight, one unpaid invoice can wipe out weeks of hard-won work.

The Principle Is Simple

If policymakers genuinely want to reduce late payment, reform must focus on consequences, not commentary.

Late payment must become financially disadvantageous.

Until then, SMEs will continue to carry the burden.

Early Action Still Wins

While policy evolves slowly, businesses cannot afford to wait.

The earlier overdue invoices are addressed, the greater the chance of full recovery. Delay reduces urgency, increases dispute risk and weakens leverage.

Cashflow protection is not an aggressive act.
It is a responsible one.

Final Thought

Late payment is not about awareness.
It is about incentives.

And incentives only change when the cost changes.