Small businesses have long criticised the lack of government support for their needs. The perception is that UK policies consistently favour large corporations at the expense of the smaller firms. 

Take late payments, for example. This has been an issue for small businesses for decades. Before the Autumn Budget, the UK government announced that it would introduce a Fair Payment Code, which aims to make business-to-business payment of invoices within 30 days the preferred standard. The government also requires companies bidding for government contracts of more than £5m to pay suppliers within 55 days – 45 days from October 2025 – and will consult next year on reporting on payment performance in company annual reports. But is it enough?

Last year, ICAEW held a round-table discussion with Small Business Commissioner Liz Barclay and members in business to discuss the challenges for small businesses and, in particular, how to tackle the issues around long payment terms in contracts offered to small suppliers by larger companies. These extended payment terms, along with overdue invoices, severely constrain small businesses’ cash flow, hindering their ability to invest in productivity and growth. 

Fair payments

On 29 October, ICAEW invited Barclay back to discuss ‘fair payments’ – a rebooting of the ‘prompt payment’ scheme – with small practice owners, who serve as crucial advisers to the UK’s smallest businesses. They work directly with micro-businesses that often lack in-house financial expertise and rely heavily on their accountants for guidance.

Barclay is reviewing the impact of late payments on small businesses, seeking evidence of systemic payment delays and working to define what constitutes a ‘late’ payment. 

A majority (65%) of ICAEW Business Confidence Monitor (BCM) respondents have standard 30-day payment terms. Three-quarters (74%) say that all or most of their customers pay invoices on time, but 34% said that late payments, as in overdue beyond the agreed payment date, and long payment terms reduce their ability to invest.

Many small businesses depend on contracts from larger companies, but attendees agreed that these larger organisations frequently pay outside the agreed payment dates, restricting small businesses’ access to funds needed for growth and investment. Quick and timely payments would strengthen supply chains overall, but there is also a need to support small businesses on negotiating more favourable payment terms, navigating complex onboarding processes better, and preparing the necessary documentation to expedite payments.

One delegate noted how recent AI tools, particularly large language models (LLMs), can assist with this process. Off-the-shelf products now include prompt templates that can review contract terms and help businesses understand their obligations better, making contract analysis more accessible and efficient.

Breaking it down

The CFO Centre, a leading fractional CFO business that also attended the roundtable event undertook some research to further inform the discussion, surveying 29 CFOs with a client base across London and the Home Counties, with turnover ranging from £1m to £52m. Jason Shaw, Principal at The CFO Centre, presented the findings, which highlighted that 65% of companies on average received their payments late and 73% of respondents that have a 30-day credit policy received their payments on average within 45 days. Interestingly, the research also found that 84% of companies have a late penalty clause in their contracts, but only 9% of companies actually used the clause in practice.

The research also found that 48% of companies withheld payment to their suppliers as a result of receiving their payments late, which ultimately compounds the late payment issue.

Clarity of contracts was viewed as important to improve the lot of small businesses in the UK. It has been a particular issue in the construction sector, where subcontractors are shouldering large upfront costs while being subject to severely unfavourable payment terms and clauses hidden deep within the contract. “Small businesses are scared to push back, so they take unfavourable terms.”

One attendee told the story of a client that went into insolvency due to the ripple effect of the loss of a business within a supply chain for a supermarket. “Big businesses aren’t underwriting the debt spread across the chain, so they are taking on no risk at all, while small businesses shoulder all of it.”

Instant sale businesses, in which customers pay when they take the goods away, are still demanding 120-day payment terms from their suppliers, another practice owner said. “That doesn’t seem fair to me.”

Another attendee stressed that small businesses need better project cost forecasting and payment negotiations, including deposits and delivery timeframes. “The eagerness can get the better of a small business,” they noted, emphasising the need for clear terms before accepting major contracts. Accountants can help small businesses with business education, attendees agreed, offering some advice on how to protect cash flows. 

Technology use

Talk then turned to e-invoicing: 58% of BCM respondents use e-invoicing, and half say it has improved payment times. But it is largely misunderstood among small businesses, attendees said, with many mistaking PDF attachments for e-invoicing. Attendees urged ICAEW to work with trade associations to promote its benefits, including automated payments and reduced invoice errors, which feature in 47% of invoices. A public consultation on e-invoicing will be announced in the spring.

With technology taking the work out of more transactional accountancy tasks, practices are well placed to take a more engaged role as advisers to small businesses. Attendees agreed that accountants want to have more conversations with their clients and want to step up into more active advisory roles. “We’ve got to be good enough, we’ve got to be compelling enough, but we’ve also got to charge for it.” 

One delegate pointed out how AI is being considered for use in schools, potentially delivering a personalised journey for students, delivered by a teacher. “That’s how I see accountants delivering their service in future.”

Ethical considerations

Finally, the roundtable discussed the ethical implications of late payments. Attendees considered fair payments to be a Board and governance issue. “Some big businesses think it is fair to hold on to the working capital, but they’re essentially using small businesses as a bank,” said one attendee.

Switching payment terms from 30 days to seven could help. Risk is being pushed down supply chains and on to the shoulders of the companies that can carry it least. 

As a result, we’re losing businesses with the potential to grow, either to insolvency or acquisition. “UK businesses sell up too early, compared with US companies. If you’re a co-founder and someone offers you a few million, you ask if it would be worth it to walk away and do something else. And usually, it is.”