How to Solve a Problem Like SMB Finance? A Roadmap to Fixing Late Payments in the UK

With Keir Starmer’s feet firmly planted under the Cabinet table, one of his first focuses will be on boosting growth. That six-letter word will be the driving force behind his achievements in Number 10, and at the heart of his economic success must be the UK’s small businesses and the fintech sector.

According to the Federation of Small Business, in 2023 SMBs accounted for 60% of all employment and more than half (53%) of all revenues in the UK private sector. If we want to improve economic growth, small businesses have to thrive and flourish, the focus should be on removing the barriers that stagnate their development.

Payments are one such pain point for SMBs which may require further scrutiny from the government, and innovation from the fintech ecosystem. Small businesses currently face a significant lag between billing customers and the money needed for costs and payroll coming into company accounts, with £23.4 billion being owed to UK businesses in unpaid invoices. Delayed payments have a ripple effect across the economy, and the unstable trading environment it fosters stifles cash flow between UK businesses.

Technologically tackling late payments

The government alone can’t have all the solutions, and businesses require greater resources and tools to manage and mitigate the impact of late payments, something that the fintech and payments industries are already working on. From the bundling of financial services, to the introduction of fintech solutions that have been reserved for consumers, such as BNPL-style credit models, it is clear that the fintech ecosystem is beginning to offer solutions to this problem.  

Yet, the role of the government will come in the form of more stringent regulation. While various measures have been introduced by the outgoing government, such as the Prompt Payment Code (PPC), these initiatives have not yet had the desired impact. While the PPC was previously a voluntary code of practice that encouraged businesses to pay out suppliers on time, there ought to be commitments towards making this compulsory at the earliest opportunity if it is to be more than a footprint in the sand. 

Implementing stricter penalties for late payments and encouraging transparency and accountability in payment practices would improve cash flow for SMEs and help grow the economy. One way to do this may be to give the Office of the Small Business Commissioner greater powers to levy fines on repeat offenders. And such an approach may well be necessary; the government estimates paying small businesses on time could boost the economy by £2.5 billion annually. 

That’s not to say that resolving late payments is a miracle medicine that will kickstart economic growth overnight. There are more actions that the government can and may well take to encourage SMB growth, such as addressing startups' access to capital. Nonetheless, that two-pronged approach of government regulation and fintech solutions could well see a healthier startup landscape where money flows more freely between businesses.  

What does this mean for fintech?

Fintech is one of the UK’s most valuable startup sectors, in no small part due to innovative financial services regulation over the past few years. Introducing open-banking standards has sent positive signals to the market, and shows that the UK can successfully balance consumer protection while enabling innovation. 

Fintech has a leading role to play in helping to alleviate the barriers to small business growth. From solving the issue of cash flow management and late payments, to streamlining accounting and bookkeeping processes, fintech startups and scaleups in the UK can play a significant role in spurring economic growth in the economy, beyond just their own success. 

Working in tandem with regulatory bodies, the UK fintech sector can lead in building solutions, a trend that is already being noted in the payments space. Regtech is fast becoming one of UK fintech’s most innovative verticals, but fintech startups are also plugging the gaps where the regulation does not. While government policy can offer a ‘stick’ that penalises unfair payment practices, the paytech industry can serve as a carrot, making it easier for UK businesses to pay and be paid. As nascent payment offerings mature and tools are bundled, those solutions will only improve and expedite cash flowing between SMBs, providing the economy with a much-needed shot in the arm. 

On the steps of Downing Street, Starmer said “the work begins today”, and while the honeymoon period might not be over yet, the hard graft to boost economic growth must begin soon, and fintech could be at its beating heart.