What Do Late Payments Cost UK Businesses?

Three late-payment numbers that should not be mixed together

The UK government's July 2025 study gives three useful estimates. Each answers a different question.

Source: Department for Business and Trade and Office of the Small Business Commissioner, Late Payments Research, published 30 July 2025. The report gives 90% confidence ranges of £18 billion to £36 billion for the outstanding balance, £4.028 billion to £10.600 billion for direct business costs and £4.739 billion to £17.643 billion for the wider economic cost.

The £26.375 billion is a stock of unpaid money at a given time. It is not an estimate of money permanently lost each year. If an invoice is paid 60 days late, the supplier eventually receives the principal, but has funded the gap in the meantime.

The £6.982 billion and £10.745 billion figures are annual costs, but they are not two bills to add together. The wider-economy calculation reuses several direct costs, removes debt-servicing payments because the researchers treat them as a transfer to a financial institution, then adds estimated effects from closures and foregone investment.

Adding all three headline numbers would produce a large, impressive and meaningless total. Late payment is expensive enough without helping it along with creative arithmetic.

What makes up the annual cost to businesses?

The central £6.982 billion estimate is broader than interest on borrowed money.

The report estimated that 22% of surveyed businesses spent staff time chasing late payments. Among businesses affected by late payment, the average was 86 hours a year. Across the economy, the researchers scaled that to 133 million hours.

Financing gets much of the attention because it is easy to price. Staff time is easier to ignore because nobody sends a separate invoice for it. It still uses time that could have gone into sales, production or customer work.

What does one late invoice cost to finance?

We modelled a £25,000 unpaid balance at three annual funding rates and three delays. These are illustrations, not observed average borrowing rates or credit offers.

Simple interest is calculated as balance × annual rate × days ÷ 365. Daily compounding uses balance × ((1 + annual rate ÷ 365)^days − 1). Both assume the whole balance stays outstanding until the final day, with no fees, repayments or tax effects.

At 12%, carrying £25,000 for 60 days costs £493.15 with simple interest or £497.96 with daily compounding. The £4.81 difference is real, but it is not the main risk. The balance, rate and length of the delay do most of the damage.

Download all 13 financing scenarios and assumptions (CSV).

What the published average balances imply

The government report estimated the average current late-payment balance among affected businesses separately by employee size. We applied the same illustrative 12% annual funding rate and 60-day delay to those balances.

The financing costs are our calculations. The balances and turnover shares come from Table 13 of the government report.

Micro businesses had the smallest balance in pounds but the largest balance relative to turnover. A £9,214 gap is modest beside a large company's receivables. At 4.61% of annual turnover for the average affected micro business, it can still be awkward enough to change which bills get paid first.

These are averages across affected businesses, not a forecast for a particular company. Averages also hide the timing of several invoices. Ten customers paying a few days late can create a different cash-flow problem from one customer withholding the same total for three months.

How the £26.375 billion estimate was built

London Economics surveyed 1,455 businesses for the Department for Business and Trade and the Office of the Small Business Commissioner. YouGov ran the online part and IFF Research handled telephone interviews. Fieldwork ran from 15 January to 7 February 2025, and the final dataset was weighted by employment size and sector.

The sample contained 680 micro, 437 small, 281 medium and 57 large businesses. Sample sizes for the current-balance question were slightly lower: 660, 396, 258 and 51 respectively.

The researchers calculated an average current late-payment balance for each size group, including zero values across all businesses, then multiplied it by the corresponding population in the 2024 Business Population Estimates. That source counted 5,498,990 UK private-sector businesses at the start of 2024, including estimates for unregistered sole traders and partnerships.

We reproduced the published calculation using the four displayed averages and business-population counts. After rounding each size group's contribution to the report's £1 million table unit, the values sum to £26.375 billion.

The public averages are already rounded. Multiplying them as if they were exact produces £26.3744472 billion, so an exact-pound reconstruction would pretend to have precision the source does not provide. The sensible result is the published £26.375 billion, with its much wider £18 billion to £36 billion confidence interval beside it.

The report classed a business as affected if it took at least one listed action because of late payment, such as chasing debtors, raising finance, injecting personal funds, reducing headcount or raising prices. It estimated 1,543,751 affected businesses, about 28% of the population.

What the government estimate includes and misses

The study defines late payment as overdue invoices, payment terms longer than 60 days, or both. That is broader than the everyday meaning of an invoice that missed its contractual due date. A business agreeing to 90-day terms enters the study's late-payment problem even if the customer pays on day 90.

The direct-cost estimates combine self-reported survey answers with the business-population data. The researchers removed implausible outliers and converted banded responses into numerical estimates. Respondents did not see the questions in advance, so some may not have known their exact chasing time or annual costs during the interview.

The wider £10.745 billion estimate adds modelled effects from business closures and lower investment. Its survival analysis draws on older Longitudinal Small Business Survey cohorts and matched company data, then scales the result using more recent late-payment incidence. The investment effect was not statistically significant in the econometric analysis, so the report used survey evidence to quantify foregone investment instead.

The report is unusually frank about the uncertainty. Late payment transfers liquidity to the customer while depriving the supplier of it, and some economic activity may move between firms rather than disappear. The authors say some omitted effects could make the estimate conservative, while displacement could make parts of it too high.

Read £10.745 billion as a central modelled estimate with a £4.739 billion to £17.643 billion range, not a cash counter ticking with government-grade accuracy.

Work out your own late-payment exposure

Start with the invoices that are past their contractual due date. Record the balance, expected extra days, the annual cost of the funding you would use and any fixed fees. The simple financing formula gives a clean first estimate, but a lender may charge a drawdown fee, monthly fee, minimum interest period or a different compounding convention.

Add the less tidy costs separately: staff hours spent chasing, collection charges, legal fees, discounts offered to get paid and work postponed because cash was unavailable. Do not count the invoice principal as a cost if you still expect to collect it.

For a conventional fixed-rate loan with monthly repayments, the business loan calculator can show payments and total interest. A 60-day revolving facility or invoice-finance agreement works differently, so use its actual fee schedule rather than forcing it into a long-term loan model.

If a customer wants longer terms, price the working-capital gap before agreeing. A deposit, staged billing or a shorter payment term can be worth more than winning revenue that leaves you financing the customer's business.