How late payments impact your cash flow—and what to do about it

Sales invoices are an integral part of most small to medium-sized enterprises (SMEs); yet, late payments are a persistent, economy-wide issue that has a detrimental impact on businesses.  

What impact do late payments have on companies?

Over 1.5 million UK businesses (around 28%) are affected at any point in time, with an estimated £26 billion tied up in overdue invoices[1].

The Department for Business & Trade and the Office of the Small Business Commissioner estimate that late payments cost the UK economy nearly £11 billion annually and force around 14,000 business closures every year[2]. On average, affected businesses spend 86 hours a year chasing what they’re already owed.

For SMEs, the good news is that there are several preventative steps you can take to recoup your payments. Our Genus team at Shorts shares the tips and techniques they use with clients to help them stay ahead of receivables.

How late payments impact your business

Irregular cashflow can have a detrimental impact to your business strategy, wellbeing, even your credit profile and standing with HMRC. Notable examples include:

Cash flow disruption

When receipts slip, so do your outgoings: supplier terms tighten, payroll pressure mounts, and growth opportunities get put on the back burner. This isn’t just a bookkeeping nuisance; it’s about having enough cash to operate confidently each week.

Planning paralysis

Uncertain receivables make forecasting efforts unstable. It becomes harder to commit to hiring, making critical stock purchases, or making investments as you’re unsure when cash will land.

Stress and strain

Owners and finance teams shoulder the burden of chasing, renegotiating, and firefighting. That time should be spent on customers and growth.

Credit profile

Late payments to HMRC (including missing deadlines for VAT, PAYE, or corporation tax) can have a knock-on effect on your credit profile. While HMRC itself does not report to commercial credit agencies, unpaid tax liabilities can escalate to enforcement action, including County Court Judgments (CCJs).

A CCJ is recorded on your business credit file for six years, significantly reducing your ability to secure finance, negotiate supplier terms, or win tenders. Even before it reaches that stage, repeated late payments can trigger HMRC penalties and interest, which may strain cash flow and increase perceived risk to lenders.

Maintaining timely compliance is essential for protecting both your financial standing and your reputation with stakeholders.

Why late payments happen: common causes

Human error, market fluctuations, and sub-standard business operations and communications can all play a part in delaying cash flow for businesses. Our Genus team provide more detail on how these negative aspects delay payments: 

Poor payment culture

In some sectors, the 30 calendar days a customer has to pay an invoice (aka “net 30”) quietly extends as average payment days creep up. For SMEs, the importance of timely cash gets diluted.

Invoice errors

Missing purchase order numbers, wrong legal names, or mismatched line items can stall Accounts Payable (AP) workflows.

Client cash flow issues

Good customers can hit rough patches. Your goal is to spot stress early and agree on a plan that protects your cash position without burning bridges.

Lack of follow‑up

Without a clear credit control rhythm, invoices slip down the queue as customers start to pay those that shout loudest first.

How to protect your business from late payment risk

There is a range of preventative efforts and operational changes SMEs can take to encourage suppliers and clients to be prompt with their payments: 

Preventative measures to take:

As the old saying goes, 'perfect planning prevents poor performance'. Taking proactive steps with your AP workflows and relationship management with your clients can prevent late payments happening early. 

1. Set clear payment terms. Stick to the conditions you lay out; otherwise, your cash flow issues will reappear.

2. Send reminders before and after payment due dates. Consistency with your communications when sending prompts is vital.

3. Run credit checks on new clients. If a customer has a pattern of late or missed payments, you can proactively plan for this.

4. Use deposits or staged/interim payments. Along with more regular cash installments, staged payments make it more likely your business can recoup cash on big invoices against market or business fluctuations.

Three simple process improvements to ease cashflow problems

Accounting software like Xero provide a range of process features to help SMEs alleviate cashflow issues. Here are some steps you can take with your chosen system today to reduce late payments:

1. Automate invoicing and reminders. Not only will this save you admin time, but you can set parameters for when communication is set.

2. Track debtor days and act early. Accounting software can embed this metric as part of your reporting dashboard.

3. Standardise your “sales order‑to‑receiving the cash” process. This will reduce your admin and help you maintain more regular communication with clients and suppliers.

Relationship management tips to reduce late payments

Building a strong relationship with clients and suppliers will help you navigate late payments in a more constructive manner. Here are some suggestions:

• Build rapport with finance contacts. Ensure you communicate with the right person in the business.
• Communicate proactively. Don’t wait until a late payment mushrooms into a bigger issue to contact the concerned party.
• Offer structured payment plans where appropriate. Be discerning when offering payment structures; otherwise, it can cause further headaches for you.

What legal options can I use if someone repeatedly fails to pay me?

We recommend speaking to a legal professional before deciding on the next route, but the below will give you an idea of what is available:

Letter Before Action (LBA): A formal notice warning the debtor that legal proceedings will start if payment isn’t made by a specified date.

County Court claim/CCJ: Filing a claim through the County Court can result in a judgment that legally confirms the debt.

Statutory demand: A written demand giving the debtor 21 days to pay before you can petition for insolvency proceedings.

Debt collection agencies: Third-party firms that pursue overdue invoices on your behalf, usually for a fee or commission.

County Court Judgments (CCJs): A court order that can damage a company’s credit rating and lead to enforcement action if unpaid.

The best tools to help you stay ahead of your payments

Our Genus team recommends using these tools to help you manage your payments:

Credit control platforms:

Top choices:

• Chaser: Automate your invoice reminders and statements with this tool.
• Fumopay: It enables customers to pay faster and more easily, removing barriers and delays.

Cloud accounting platforms:

Top choice: Xero 

The system makes the visibility of accounting information clearer to users and allows easy connection to add-ons. Shorts is a Platinum partner of Xero – please contact our Genus Team if you need more information on Xero.

Cash flow forecasting & management reporting:

Top choices: Fathom, Syft, and Float 

All of these tools can be used to manage cash flow proactively.

Get your late payments in line

Late payments erode cash flow, cloud your decisions, and drain your time. The fix is rarely one silver bullet. It’s a system: clear terms, better process, consistent follow‑up, the right tools, and when required, measured legal steps.

For a quick health check to determine how you are doing, do the following this week:

1. Terms & invoices: Are payment terms on your invoices clearly?

2. Chase process: Do you have an automated reminder schedule with escalation rules?

3. Debtor review: Which customers are >15 days overdue? What have you done about this?

4. Levers to pull: Where will you apply deposits, interim billing, or statutory interest?

If you want a hand, talk to the Genus team at Shorts about tightening credit control, setting up Xero and any other addons, and building cash‑flow visibility into your monthly routine.

We’ll help you design the end‑to‑end process and the reporting that goes with it.

[1] Department for Business and Trade. (2025). Late payments consultation: tackling poor payment practices. [online] GOV.UK. Available at: https://www.gov.uk/government/consultations/late-payments-tackling-poor-payment-practices/late-payments-consultation-tackling-poor-payment-practices. 

[2] Small Business Commissioner. (2025). Late Payments Research. [online] Available at: https://www.smallbusinesscommissioner.gov.uk/news/late-payments-research [Accessed 3 Sep. 2025].