The UK is almost unique in being a place where it is acceptable to pay small businesses late, and that will remain the case without further action.

Tina McKenzie,
FSB Policy Chair

Thousands of small businesses are being held back not by a lack of ambition but by a systemic poor payment culture. There remains a lack of adequate protection for the self-

employed and small businesses. Previous FSB research found that if late payments had been made on time and as promised, in line with other comparable countries, 50,000 business closures could be avoided each year.

The definition of prompt payment for a small business supplier, contained in the voluntary Prompt Payment Code, is to pay 95 per cent of invoices within 30 days. That is a far-off dream for many small firms. Our research has found in every quarter in 2022, the majority of small businesses experienced late payments. For one in four small businesses, they reported that late payments had got worse, quarter-on-quarter.

The small business community isn’t alone in its concerns about late payment. The public agrees too. A consumer attitudes poll conducted by Public First, for the Federation of Small Businesses, found that a quarter of the public felt that suppliers should be paid within a week of invoice, which is a far cry from the reality.

It needs to become an urgent priority for the UK Government, or for those competing to become the next UK Government, to eradicate late payment. Existing initiatives, while commendable, were necessary but not sufficient. The economic headwinds that we face make addressing late payment more critical than ever. If you aren’t convinced by the moral argument that it’s simply wrong for larger businesses to treat smaller suppliers as a form of free credit, or indeed by the economic argument that solving this would be the single most effective measure to increase UK productivity, then you might be convinced by the fact that late payment causes small business owners to fear for the future of their business, undermining their mental health.

Since 2020, the small business and self-employed community in the UK contracted by a net half a million. With smaller businesses generally having much lower cash reserves than their larger counterparts, the clear risk is that late payment was already a contributory factor to this 10 per cent shrink and will now cause this number to rise. This report shows there is public support for the current UK Government, or a potential incoming Government, to get a grip and put in place the necessary reforms and controls. Clamping down on late payment will provide a massive boost to the economy and comes at no cost to the public purse. It should be right at the top of any UK agenda for growth. We welcome the fact that Government is looking at this problem, with its Prompt Payment and Cashflow Reviews. However, a review doesn’t pay the bills – after numerous reviews in the last decade, it is action that matters. This report shows the way, outlining the evidence from small businesses, and solutions necessary to make progress. We call on the Government to implement these solutions with haste. Delay destroys businesses.

Key findings


The UK Government should:

  • Give Audit Committees of large companies oversight of payment practices and report on this in the firm’s annual report. (p32). Compel the Financial Reporting Council to include payment practices in annual reporting guidance to corporates. (p32)
  • Mandate and require the Small Business Commissioner (SBC) to directly refer poor payers to the disbarment from public procurement list; to proactively investigate companies where the SBC has reason to suspect poor payment practices may exist; and to investigate poor practices at the request of certain trusted third parties, including Parliamentary Committees. The SBC should restart and amplify the ‘name and shame’ process. (p32)
  • Publicly commit to limiting maximum payment terms to small suppliers in law by 2027, if payment practices do not significantly improve. (p20)
  • Expand requirements under Duty to Report payment practices and performance to include additional data, including payment practices and performance in relation to large businesses’ small suppliers; terms offered in supply chain finance arrangements; performance in relation to retention payments; the proportion or number of purchase orders provided after one week; and the proportion or number of invoices which are disputed. (p33)
  • Require corporates to report the median value of payments due but not paid. (p34)
  • Require a greater level of geographic and sectoral information in payment practices reporting to increase scrutiny available to local and devolved governments. (p20)
  • Require signatories to the Prompt Payment Code (PPC) to confirm their compliance with the Code annually; this should be supported by random audits. (p34)

Public funding, tax reliefs and public procurement

  • Prevent corporates with poor payment practices from receiving taxpayer funds or grants, including from bodies such as Arts Council England, Innovate UK and local authorities. (p20)
  • Prevent corporates with poor payment practices from claiming any non-structural Corporation Tax reliefs. (p20) 
  • Amend the current Procurement Bill so that poor payment practices and performances lead to debarment from public sector contracts, and a company being placed on the new debarment list. (p21)
  • Make the Prompt Payment Code mandatory for all local authorities. The Department for Levelling Up, Housing and Communities (DLUHC) should create a new local authorities Payment Practices league table with financial incentives for those at the top and bottom. (p21)
  • Form stronger links between the Small Business Commissioner and the Public Procurement Review service. (p35)


  • Include retention payments within the maximum 30 days payment terms standard, and set retention payments to a maximum of 3 per cent of total contract value, as well as including them in Duty to Report requirements. (p22)
  • Support and expand project bank accounts, and ringfence retentions payments so they cannot be used for working capital, to disincentivise abuse of the system. (p22)

Technology, awareness raising and practical support

  • The Small Business Commissioner should introduce app-based reporting and a proactive communication campaign to encourage freelancers and the self-employed to report and manage poor payment by their clients. (p35)
  • Innovate UK should fund private sector innovation to provide more tools for small businesses to cope with late payment. (p22)


Download the full report

Get the full picture with our 'Time is Money' report. Click the link to download.