What chasing late payments actually costs a UK small business

TL;DR

Late payment is sold to small businesses as a discipline problem: chase harder, be firmer, get better at credit control. But when the UK government finally costed it properly in 2025, the bill didn’t fall where the advice points. Late payment costs the UK economy almost £11 billion a year (central estimate; the 90% confidence interval runs £4.7bn–£17.6bn). The single largest line in what it costs an individual business is staff time chasing money — about £2.3 billion. Each affected firm spends about 86 hours a year on it. The delay’s financing cost is real, but it doesn’t out-rank the labour.

Which points somewhere uncomfortable for the “be more disciplined” advice: the chasing is the cost, and the chasing is exactly the thing software does without a person. This is a software gap wearing a discipline costume.

The numbers everyone repeats

Search “cost of late payments UK” and one figure greets you everywhere: poor payment culture kills 50,000 businesses a year and costs £2.5 billion in lost output. It’s on vendor blogs, advisory sites and trade press, always in the present tense.

It comes from a single Federation of Small Businesses report — “Time to Act,” published in November 2016. A figure modelled nearly a decade ago is still being reported as this year’s news. And in 2025 the government checked it: its own econometric estimate of closures attributable to late payment came out at around 14,000 a year (a wide and fragile estimate — more on that below), not 50,000 — a roughly 72% haircut on the number the internet still repeats.

The “how much are small firms owed?” figure is no steadier. Depending on who you read, UK small businesses are owed £23.4bn (Bacs, 2019, from a survey of ~355 firms), £26bn (the government’s all-business figure, 2025), £70.4bn (Hiscox, 2026, extrapolated from 1,000 owners), £112bn (Sage, 2025) or £141bn (Xero, 2018). That’s a sixfold spread — and it isn’t because anyone’s lying. It’s because they measure different things: all businesses or only small ones; invoices genuinely overdue or merely on long terms; a survey of a few hundred firms or the actual invoice data of millions. The number you get is mostly a decision about what you count. Worth remembering the next time a statistic arrives without its method attached.

None of this means late payment isn’t a real problem — it plainly is. It means the size of it has been asserted more often than measured, usually by people with something to sell or a campaign to run. Which is exactly why the 2025 government study matters: for the first time, there’s a number you can check.

What the evidence actually says

The reason we can be precise now is that in July 2025 the Department for Business and Trade and the Small Business Commissioner published the first proper study of this — researched by London Economics, with academic advisors from Warwick and Aston, built on a survey of 1,455 businesses plus econometric modelling. It is not a vendor selling a fix. It is the source worth anchoring to, and its findings are more interesting than the headlines.

Start with what late payment is not. At any moment, UK businesses are owed about £26 billion in late payments. The instinct is to call that a £26bn cost. The report is careful to say it isn’t: it’s “£26 billion of interest free finance to their customers… not a net cost for businesses,” because every pound a supplier is owed late is a pound a customer is holding onto — a transfer, with winners and losers, not money set on fire. Almost every write-up drops that caveat. It matters, because it moves the real cost away from the amount and onto what firms do about it.

And what they do about it is mostly chase. Across the economy, chasing late payers burns an estimated 133 million hours of staff time a year — 86 hours per affected business. When the report adds up what late payment actually costs businesses out of pocket — roughly £7 billion — the biggest single line isn’t interest or bad debt. It’s staff time chasing debtors, at about £2.3 billion. Legal costs, debt collection and invoice financing follow, each around £1.1–1.2bn.

Cost to UK businesses (central estimate)	£ millions/year
Staff time chasing debtors	2,259
Supply-chain finance / invoice factoring	1,213
Legal costs	1,213
Servicing debt finance taken out because of late payment	1,165
Debt collection	1,132
Total business cost	≈6,982

Source: DBT/OSBC & London Economics, “Late Payments Research,” July 2025 (survey of 1,455 UK businesses; government-funded).

The heaviest burden falls on the smallest firms. A micro-business affected by late payment is owed 4.6% of its turnover on average — the equivalent figure for a large company is 0.2%. Small firms are least able to carry the gap and least equipped to close it: the same study found only 20% of micro-businesses use invoicing software at all, against 67% of large ones. That gap is the quiet scandal in the numbers. The tool that turns chasing from a person’s job into a background process exists, is cheap, and is used by two-thirds of big companies — and by one micro-business in five. The firms carrying the heaviest load are the ones least likely to own the thing that lifts it.

And it doesn’t stay in one business. A firm paid late is often a firm that then pays late; the shortfall runs down the chain. In a 2025 survey of its members by the Federation of Small Businesses — run with the payments firm GoCardless, so read it as a trade body’s own members rather than a neutral sample — 36% of firms hit by late payment said it left them unable to pay their own suppliers on time, and 28% had turned to short-term borrowing to cover the gap. Sixty-one per cent said late payment was holding back their growth. The single overdue invoice is rarely the whole story; it’s the first domino.

And some invoices never arrive at all. Late payment shades into bad debt — the money written off when a customer folds or simply refuses to pay — which is the same problem at its sharp end. The estimates here are shakier and tend to come from lenders with a product to sell: one invoice-finance provider’s 2026 survey put the average sum a small firm writes off at around £29,000, affecting roughly a third of them. Treat the figure as directional given who’s counting, but the direction isn’t in doubt — the tail of late payment is money that turns into nothing.

Now the honest part. If you’re tempted to conclude the financing cost of late payment doesn’t matter, don’t. A 2024 peer-reviewed study across eleven European economies found that firms suffering late payment are around two percentage points more likely to be credit-constrained — the delay pushes up the price of the finance they can get and cuts how much of it they can get at all. (It’s a European dataset, not a British one, so treat it as the direction of travel rather than a UK figure.) And in the government’s own out-of-pocket numbers, the finance-related lines — servicing debt plus factoring, about £2.4 billion together — roughly equal the chasing line. So the fair statement is not “financing is irrelevant”; it’s that the chasing labour is comparable in size to the financing cost — and unlike the financing cost, it’s the part you can simply delete.

The financing cost is real, and it has grown. Xero, which says its figures come from its customers’ invoice data rather than a survey, put the interest cost of late payment to UK small firms at about £1.6 billion in 2023 — more than double its 2021 estimate, as higher base rates made the delay dearer to carry. (Xero sells accounting software, so weigh it accordingly — though invoice timestamps are harder to spin than survey answers.) The honest position isn’t that financing doesn’t hurt. It’s that of the two big costs, one is a price paid to a bank and the other is hours your staff never get back — and only one of them is optional.

One more caveat we’ll wear openly, because this piece’s whole point is that a number should travel with its method. The eye-catching “14,000 businesses close a year — 38 a day” is the government’s central estimate, but its 90% confidence interval runs from about 2,000 to 27,000, the effect is statistically firm only in the 2018–19 windows (and not under the report’s own stricter test), and it’s drawn from a 300-firm sample using pre-pandemic data. It’s the best estimate we have that late payment closes businesses. It is not a body count, and anyone who prints “38 a day” as hard fact hasn’t read the annex.

What we build

Here’s where the “be more disciplined” advice quietly contradicts itself. The same study notes that the fixes it recommends — charging interest on overdue invoices, demanding a purchase order before delivery, chasing before the due date rather than after — are barely used (each by under 7% of firms), and adds the telling line that doing more of them “would come at the cost of additional staff resource.” In other words: the cure for the labour problem, as usually prescribed, is more labour.

That’s the gap we build into. Credit control shouldn’t be a discipline you impose on a busy person; it should be embedded in the software the business already runs. When we build it into a business, the chase ladder runs itself — a polite reminder on day one overdue, a firmer one a week later, an escalation after that — and it stops the instant the payment lands, so nobody ever chases someone who’s already paid. It watches the terms, it never forgets, it never has an awkward week, and it logs every touch so the audit trail writes itself. The 86 hours the research prices don’t get reduced; they stop landing on a person at all.

This isn’t hopeful arithmetic — every source that tries to measure chasing measures it in hours. QuickBooks (an accounting-software firm, and so a motivated counter) put it at about four hours a week in its 2024 survey of UK small firms; the government’s figure works out at 86 hours a year for an affected business. Vendor and government numbers on this rarely land on the same total, and these two don’t either — but they agree on the shape that matters: chasing is repetitive, rules-based work, counted in hours, week after week. Which is exactly the kind of work software is built to absorb.

The embedding is the point, not a detail. Because the credit control lives inside the system the business already runs on — the same place invoices are raised and payments arrive — there’s no second tool to log into, no export-and-reconcile, no task that quietly becomes someone’s least favourite part of the week. The chasing doesn’t move from one person to another. It stops being a person’s job.

That’s the difference between treating late payment as a character flaw and treating it as what the evidence says it is: a cost that mostly takes the form of manual work — and manual work is the thing software is for.

What it means for a business like yours

If late payment hurts, the reflex is to blame the chasing — that you’re not firm enough, not on top of it, not chasing early enough. The numbers say the chasing is the cost, and being better at it by hand just means paying that cost more diligently. The £2.3 billion the country spends chasing money it’s already owed is the sound of a solved problem being solved by hand.

So the useful question isn’t “how do we chase better?” It’s “why is a person chasing at all?” Count the hours your team spends this month on reminders, statements and “just following up on my last email” — then decide whether that’s work, or work that could run itself.

Here’s a rough way to price it. Take the government’s 86 hours a year and put your own cost on the hour — say £20 to £30 once employer costs are loaded on. That’s £1,700 to £2,600 a year for each person doing the chasing, spent on work whose entire output is the money you were always owed, slightly sooner. Then add the invoices that came so late they nearly didn’t, and the few that never came at all. Framed that way, the question stops being whether automating it pays for itself and becomes why it hasn’t happened already.

If you would rather not do the arithmetic by hand, the late-payment calculator does both sums — the statutory interest and compensation you could add to what you’re owed, and what the chasing itself costs — free, no email required.

That’s exactly what the free process audit does: it maps your manual processes, chasing included, and shows you which ones a computer should be doing. You leave with the map whether or not we ever build a thing.

Book a free process audit →

Sources

1. Department for Business and Trade & Office of the Small Business Commissioner — “Late Payments Research: Estimating the total economic cost of late payments and their impact on the UK economy” (London Economics, July 2025). Survey of 1,455 UK businesses (YouGov/IFF, Jan–Feb 2025) plus econometric modelling; government-funded. The spine of this piece: the £11bn, £26bn, £2.3bn chasing, 86 hours, 14,000 closures and software-adoption figures.
2. Federation of Small Businesses — “Time to Act” (November 2016). The origin of the widely-repeated “50,000 closures / £2.5bn” figure; a representative-body estimate now superseded by (1).
3. Pay.UK / Bacs late-payment research (2019) — the £23.4bn “owed” figure; survey of ~355 firms.
4. Sage / Cebr (May 2025) — £112bn owed; analysis of 1.2m invoices from Sage customers. Vendor-funded (accounting software).
5. Intuit QuickBooks / Opinium (2024) — corroborating labour figures (~4 hours/week chasing). Vendor-funded.
6. Xero Small Business Insights (2018 and 2024) — the £141bn “owed” extrapolation and a £1.6bn lost-interest estimate. Vendor-funded; based on real invoice data.
7. Hiscox Late Payments Report (2026) — the £70.4bn figure; Censuswide survey of 1,000, extrapolated. Insurer-funded.
8. Kaya, “The impact of late payments on SMEs’ access to finance,” Economic Modelling vol. 141 (2024) — peer-reviewed; the financing-cost counter-evidence (credit rationing across eleven European economies).
9. Federation of Small Businesses / GoCardless — Late Payments Report (2025; survey of ~2,298 FSB members). The knock-on figures — unable to pay own suppliers, short-term borrowing, growth held back. Representative-body survey, co-produced with a payments vendor.
10. Bibby Financial Services (2026) — the ~£29,000 average bad-debt write-off figure. Invoice-finance provider; treated as directional given the commercial interest.