Late payments 2026: how to turn unpaid invoices into working capital

Section 01

The Howden numbers

Research published by Howden on 14 August 2026 found:

Around 30% deal with late payments regularly, more than half at least occasionally, and 6.4% delay hiring or investment because of the gap.

Howden links late payments to over 1,000 business closures a month. Sage has separately estimated the cost to the UK economy at around £11bn a year.

Howden has not published a sample size or method, so read the percentages as the shape of the problem rather than precise measurements.

Worth holding alongside that: late payment is actually improving. Government statistics show large businesses paid 15% of invoices late in 2025, down from 25% in 2018, with average payment times of 32 days against 35. A shrinking problem can still be an expensive one, and neither fact helps if you are the invoice that went late.

Section 02

Why chasing is the wrong response

Three reasons.

Section 03

Invoice finance, discounting and factoring

Three names, routinely used interchangeably, meaning different things. Getting this wrong is the most common mistake we see.

Invoice finance is the umbrella term for borrowing against unpaid invoices.

Invoice discounting means you keep the customer relationship. You continue to issue invoices and collect payment yourself, and the arrangement is typically confidential, so your customers need never know. Providers usually want to see that your credit control is competent, because you are still doing it.

Invoice factoring means the provider takes over collection. They chase, they handle the ledger, and your customers deal with them. That removes the admin burden entirely, which is the appeal, but it is visible to your customers and how it lands depends on your market.

Selective invoice finance lets you fund individual invoices rather than committing your whole ledger. More expensive per invoice, far more flexible, and often the right answer if the problem is one large slow payer rather than a systemic pattern.

Section 04

A worked example on a £50,000 invoice

Illustrative only. Actual advance rates, charges and terms vary by provider, by sector and by the creditworthiness of your customer.

You invoice a customer £50,000 on 60 day terms. Under a typical arrangement:

The charges usually come in two parts: a service fee for running the facility, and a discount charge that accrues for as long as the invoice stays unpaid. The second part is the one that surprises people, because it means a customer who pays at 90 days rather than 60 costs you more.

The question to ask any provider, in exactly these words: what does this cost me in pounds, in total, on a £50,000 invoice paid at 60 days, including every fee? A number, not a percentage.

Section 05

When an overdraft beats it

Invoice finance is not automatically the answer. An overdraft or revolving facility is usually better when:

• The gap is small and occasional. Facility fees on an invoice arrangement are hard to justify for an occasional wobble.
• Your cash gap is not invoice shaped. If you are funding stock ahead of sales, or a seasonal dip, there is no invoice to finance.
• You sell to consumers. Invoice finance needs business customers on credit terms.
• Your ledger is concentrated in one or two customers. Providers often price that as higher risk, or decline it.

Two honest downsides worth going in with your eyes open about. It costs margin on every funded invoice, and on thin-margin work that adds up faster than owners expect. And a facility taken for a one-off crunch has a habit of becoming permanent, because stepping back off it means going a full cycle without the cash you have got used to.

It also does not fix a customer who is never going to pay. Whether bad debt is covered, and on what terms, varies by facility and is worth reading rather than assuming.

Section 06

The underwriting looks somewhere else

The reason this is worth knowing even if you decide against it: because repayment comes from your customer paying their invoice, providers weight the creditworthiness of your customer book heavily, alongside your own trading position.

That is a materially different assessment from a term loan, which looks primarily at you. A business that has had two difficult years but sells to solid, creditworthy customers can sometimes get further with an invoice facility than with a conventional loan. It is not a rule and it is not a guarantee. It is the reason a decline from your bank is not the end of the conversation.

Section 07

Where we come in

We do not make credit decisions and we do not issue the money.

On invoice finance the useful work is diagnostic before it is anything else. Is this a timing problem or a pricing problem wearing a timing costume? Which of the products fits how you actually sell? Which providers are comfortable with your sector and your customer concentration? That is what decides whether you end up with a facility that helps or one that quietly costs you a slice of every job.

Answering those questions across the whole market is a broker’s job. bizbritain arranges working capital finance, invoice finance included, from a panel of 100+ lenders. Struggling to compare two quotes? Our guide to why 66% of UK SMEs don’t apply for finance shows how to read costs given in different formats.