While the UK Government consults on major reforms to combat late payments, any new laws are unlikely to take effect until 2026 or 2027. In the interim, small businesses and freelancers must continue to manage cash flow challenges under the existing legal framework.

Rob Rees, Divisional Director at Markel Direct, the specialist insurer of small businesses, offers the following seven practical steps SMEs can take now to mitigate the risk of late payments and strengthen their financial position:

Vet New Clients’ Credit History: Before agreeing to work, conduct due diligence on potential clients. Use credit reports and scoring services to assess their financial stability and historical payment track record. Checking the official Register of County Court Judgements can also flag past issues.

Request Deposits or Staged Payments: Secure your financial interests by asking for an initial deposit upfront or implementing a system of staged payments tied to specific project milestones. This establishes commitment and ensures a steady cash flow throughout a project’s duration.

Ensure Clear Contracts from the Outset: Do not start work without a clear, written contract. The document must explicitly state payment milestones, invoicing due dates, and specify any statutory interest or compensation fees that will be applied to late business-to-business debts.

Implement a Payment Chasing System: Establish a rigorous process for chasing overdue invoices. Start with a friendly, professional telephone call on the due date to inquire about the payment status. If payment is not forthcoming, send automated email reminders and follow up firmly, being prepared to act decisively.

Utilise Statutory Interest: If a payment is significantly delayed, inform the client in writing that you will be exercising your statutory right to claim interest (set at 8% over the Bank of England base rate) and compensation to cover debt recovery costs.

Explore Mediation and Public Bodies: For disputes over service quality or inability to pay, professional mediation can offer a cheaper and more flexible alternative to court action. Furthermore, businesses that have exhausted attempts to resolve the issue can make a formal complaint to the Small Business Commissioner, who may be able to investigate the case.

Consider Legal Action as a Last Resort: When all amicable efforts fail and a significant debt persists, be prepared to consider legal action rather than simply writing off the money owed. This should be a final step, often requiring consultation with a solicitor who specialises in debt recovery.

Taking these precautions will place SMEs in the strongest possible position to protect their finances while waiting for the government's long-term legislative reforms to take effect.