UK Businesses Are Shortening Payment Terms to Survive. Is It Working?

A growing number of UK businesses are no longer waiting around to see if late payment sorts itself out. They're changing their own terms to protect themselves first.

In short: new research from Bibby Financial Services has found that 4 in 10 UK SMEs have shortened their own customer payment terms to protect cash flow, as unpaid invoices and bad debt continue to climb. It's a defensive move that can genuinely help, but on its own, it doesn't recover the money that's already overdue.

The Scale Of The Problem

The latest BFS SME Confidence Tracker, surveying over 1,000 UK SME owners and decision-makers, paints a clear picture of a cash flow squeeze building across the economy. Sixty percent of businesses believe their customers are taking longer to pay than they were a year ago, and the average SME is now owed £72,000 in outstanding invoices at any given time. For mid-sized businesses, that figure rises sharply to £143,000.

It isn't just slow payment causing the strain. Average bad debt among SMEs has risen above £30,000, and 58% of businesses reported that at least one of their own suppliers had ceased trading or become insolvent in the past six months. More than half (55%) said they'd seen the same happen among their customers. Put simply, businesses are being squeezed from both directions at once: paid late by their customers, while watching their own suppliers fail around them.

Why Businesses Are Shortening Their Own Terms

Faced with this pressure, 4 in 10 SMEs have responded by tightening the payment terms they offer their own customers - reducing the window between delivering a product or service and expecting to be paid for it.

It's an understandable, rational response. If you can't control how quickly your customers pay you, shortening your own exposure is one of the few levers left within your control. For many businesses, it's a genuine, immediate improvement to cash flow predictability.

Why This Doesn't Solve The Underlying Problem

Shortening your terms changes what you ask for. It doesn't change whether your customers actually pay on time. A business that previously took 90 days to pay an invoice under 60-day terms is just as capable of taking 90 days to pay the same invoice under 30-day terms - the only difference is that the payment is now further outside of agreed terms, and technically overdue sooner.

This is the gap between a defensive measure and an actual solution. Tighter terms can reduce how long you're waiting under normal circumstances, but they do very little for the invoices that are already sitting unpaid, or for customers whose payment behaviour has nothing to do with the terms on the page and everything to do with their own financial pressure.

What's Changing In The Law

The findings arrive as the government's own late payment reforms continue moving through Parliament. The Small Business Protections Bill (also referred to as the Commercial Payments Bill), introduced in May, proposes a maximum payment term of 60 days, mandatory statutory interest on late payments with no opt-out, and stronger powers for the Small Business Commissioner to investigate and fine persistent late payers.

Nearly a third of SMEs surveyed (32%) want robust late payment legislation in place by the end of the current Parliament - a clear sign that voluntary good practice alone isn't seen as enough by the businesses most affected.

What You Can Actually Do About It Today

Shortening your payment terms is a reasonable step, but it works best alongside action on the invoices already overdue, not instead of it. A few things worth prioritising:

Review your current debtor book honestly, not just the total owed, but which specific invoices are genuinely at risk versus simply running late. Where a customer has gone quiet or started slipping consistently, don't wait to see if the next invoice resolves it - the data above suggests that pattern is now common, not unusual. And where an invoice has been outstanding for a meaningful period already, shortening future terms won't recover it; a structured recovery process will.

If you're carrying overdue invoices and the pressure described in this research sounds familiar, specialist commercial debt recovery can help you recover what's owed, rather than simply managing around it.

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FAQs

Why are UK businesses shortening their payment terms? To protect their own cash flow, in response to customers taking longer to pay and rising bad debt. Shorter terms reduce a business's exposure going forward, even if they don't resolve existing overdue invoices.

Does shortening payment terms stop customers paying late? Not directly. A customer who pays slowly under 60-day terms is often just as likely to pay slowly under 30-day terms - the terms change, but the customer's own payment behaviour and financial pressures usually don't.

What's the average amount UK SMEs are currently owed? According to the latest Bibby Financial Services research, UK SMEs are owed an average of £72,000 in outstanding invoices, rising to £143,000 for mid-sized businesses.

Is new UK legislation going to fix late payment? The Small Business Protections Bill (Commercial Payments Bill) proposes a 60-day payment cap, mandatory interest, and stronger enforcement powers, but it's still progressing through Parliament and isn't law yet.

What should I do if I already have overdue invoices? Review which are genuinely at risk, act early on accounts that have gone quiet or started slipping, and consider specialist recovery support for invoices that have been outstanding for a meaningful period, since shortening future terms won't recover money already owed.