Late payments – a director’s guide to understanding the risk
Late payments are a direct route to financial distress, particularly when finances are already stressed, says Carolynn Best from UK Liquidators.
Late payments cost the UK economy an estimated £11 billion per year.
UK businesses are owed around £26 billion in overdue invoices at any one time, averaging £17,000 per affected business.
Around 14,000 businesses close each year as a direct result of late payment.
For some, they’re a background concern, while for many, they squeeze cash flow, strain finances, and stunt growth. Regardless of a company’s size, turnover, or sector, most distressed company directors cite late payments as a contributing factor to financial decline.
The latest Late Payments Research shows that the equivalent of 38 businesses go out of business each day due to late payments. As rising operating costs, high inflation, and cost pressures from the energy crisis compound deteriorating finances, one late payment can upend financial health. If businesses cannot recover from the damage caused to cash flow by persistent late payment, insolvency may be the endpoint.
What late payments look like in practice
Company directors we speak with frequently cite late payments, withheld funds, and bad debts from clients as major catalysts for their financial distress. Common scenarios we see when dealing with distressed directors seeking to liquidate due to late payments include:
- Discovering a non-paying client with a notorious history of unpaid county court judgments
- A subcontractor failing to pass on VAT, leaving the director with an unexpected shortfall
- A high-value client going through financial restructuring, leaving an outstanding balance across multiple invoices with no clear resolution
- Customers ignoring final balances
- Hitting a stalemate with clients after multiple reminders and threats of court action
- Payments withheld due to ongoing payment disputes with clients, such as disputes relating to snags and remedial work
A pattern we see regularly is insolvency triggered by historic bad debts. This is when a director absorbs a significant unpaid invoice, stabilises the business, but is left with a residual financial hole that compounds quietly over subsequent years into HMRC arrears. By the time the director seeks advice, insolvency is looming due to insurmountable tax arrears, all stemming from an unpaid invoice.
The Late Payments Research estimates that 14,000 businesses close each year because of late payments, including bad debts.
Late payments – a growing crisis in construction
The construction sector features heavily in our conversations with directors seeking liquidation advice, which is consistent with published financial distress statistics. Construction accounts for around 95,000 of significant distressed businesses in England and Wales, which is more than any other sector, according to Red Flag Alert (RFA) statistics for Q1 2026. The combination of project-based billing, subcontractor chains, and clients exercising extensive rights to withhold interim payments makes it particularly exposed.
What is notable across our construction cases is that most directors involved actively pursued debts, from invoicing promptly and chasing repeatedly, to pursuing formal routes in several cases. However, business debts remained ignored, which is the reality for many directors.
Averting an insolvency crisis
If after issuing payment reminders and warnings, through to statutory demands and winding up petitions, debtors fail to make payment, this may indicate bad debt. At this point, an insolvency crisis could be fast approaching. If the underlying business is viable, immediate restructuring support can secure a lifeline and ultimately help the business avert insolvency.
A limited company is insolvent when it cannot pay its debts as they fall due (cash flow insolvency) or when liabilities exceed assets (balance sheet insolvency). At this point, the obligation moves from acting in the interests of shareholders or directors, to avoiding further loss to creditors under the Insolvency Act 1986. Early advice from a licensed Insolvency Practitioner is the most effective way to protect the business and creditor rights. Acting voluntarily also provides more control over the process, including the timeframe of insolvency events.
Late payments – help is on hand
If your business is dealing with an unresolved payment dispute with a larger customer, free support with legal action is available through the Small Business Commissioner. If the situation has escalated from a dispute to financial distress, the appropriate professional to consult is a licensed Insolvency Practitioner. The Insolvency Practitioners Association (IPA), Institute of Chartered Accountants in England and Wales (ICAEW), and the Institute of Chartered Accountants in Scotland (ICAS) all maintain publicly accessible registers of licensed practitioners.
Carolynn Best is a licensed Insolvency Practitioner at UK Liquidators with over 20 years of experience supporting SMEs, she is also an ACCA qualified accountant.