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Payment Speed and Timeliness for UK Small & Micro Businesses

November 2022

There has always been a spotlight on the impact of businesses getting paid late for their work, but a recent report by leading UK data scientists has revealed that the problem of late invoice payments to micro and small businesses (which includes freelancers, sole traders and micro firms as well as small businesses) has significantly improved over the last ten years, falling by over 50% from an average of 81 days in 2010 to 36 days in 2020/21.

Don’t be fooled that the problem has gone away – over the period 2020-21, 40% of invoices paid to businesses like these in the UK were paid late (down from 47% in 2010-13), with 12% over 30 days late and 12% paid over 60 days beyond the agreed payment date. In 2020–2021, the average business in the research had carried approximately £22k of late payments outstanding at any point in time. This figure is nearly the same as what businesses in the research were owed that was not overdue (non-late outstanding payments) at any given time on average.

The improvement in the time taken to pay invoices is mainly due to the impact of technology that has digitised the invoice payment process. Gone are the days of elongated paper trails, with payment by cheque and the time taken for the cheques to clear. Instead, invoices are now mainly electronically created and delivered, with faster payments meaning payment can be made almost immediately.

Credit can also be given to a continued focus by successive governments on the issue, with the formation of the Office of the Small Business Commissioner in 2016 and the Prompt Payment Code (PPC), a voluntary code designed to encourage swifter and better payment practices.

This level of insight has been made possible due to the unique data asset Smart Data Foundry is creating by partnering with UK financial institutions to share data safely and securely. Smart Data Foundry partnered with Sage Group, the market leader for integrated accounting, payroll, and payment systems, who shared de-identified data on 110,000 micro and small businesses and 58 million sales invoices over the period 2010 – 2021.

The analysis also highlighted hotspots by industry, geography, and size. Public Administration, Transport, Storage, and Quarrying are the slowest sectors in terms of payment during 2020-2021, while Northern Ireland has the slowest payment time on average by region as of 2020-2021 (c. 39 days).

Commenting on the approach, Martin Nel from Smart Data Foundry said “This is the first time that data has been used at this scale to truly understand what is happening once a small or micro business issues an invoice for payment of services it has delivered. To protect customer rights and privacy, all of the Sage data is de-identified, and accessed and analysed by Smart Data Foundry in the security of the University of Edinburgh Financial Data Safe Haven environment, a controlled and secure service environment for undertaking data research. Going beyond the traditional approach of research through surveys and focus groups has allowed us to really get under the skin of the issue and show that while the position is improving, two out of five invoices are still being paid late to UK small businesses.”

Liz Barclay, Small Business Commissioner added “Small businesses, and by that I mean freelancers, sole traders and micro firms as well as small ones, are crucial to the UK economy. They employ nearly two-thirds of the UK’s workforce, are responsible for at least three-quarters of innovation, lead the levelling up agenda and are the talent that drives the success of their bigger customers. The work Smart Data Foundry is leading with Sage Group shines a light on the issue of late and slow payments. With the soaring cost of doing business, it’s more important now than it’s ever been to get small firms paid as quickly as possible to allow them to survive and reach their full potential. I’m encouraged that the Prompt Payment Code is being credited with making a difference, but everyone has a role to play in improving payment practices. Time is of the essence. We must reduce the problem of late and slow payments to small businesses now.”

Paul Struthers, Sage Managing Director (UK and Ireland) also added “The impact of late payments is not only an issue for the business and their employees but also their suppliers and the entire economy. Sole traders, freelancers and small businesses who struggle to maintain cash flow for their day-to-day business activities because of late payments have an obvious economic impact, but the mental health impact of late payments cannot be overstated. Consistently being paid late causes stress and anxiety for owners who struggle to keep their businesses afloat.”

About Smart Data Foundry

Smart Data Foundry is a data innovation organisation serving the public, private and third sectors. In September 2020, Smart Data Foundry received initial funding from the UK Government’s Department for Business, Innovation & Industrial Strategy through the UK Research & Innovation Strength in Places Fund.

Its mission is to improve people’s lives by safely unlocking the potential of financial data to enable research, innovation, and skills development in Financial Services and FinTech. Smart Data Foundry is a collaboration between the University of Edinburgh, the Financial Data and Technology Association (FDATA) and FinTech Scotland.

Smart Data Foundry was one of the first major data-themed partnerships following the launch of the University’s Data-Driven Innovation (DDI) initiative, part of the City Region Deal. Under DDI, the University is creating a network of hubs to help public, private and third sector organisations improve products and services through research coupled with high-powered data analytics.

About Sage

Sage exists to knock down barriers so everyone can thrive, starting with the millions of small- and mid-sized businesses served by us, our partners and accountants. Customers trust our finance, HR and payroll software to make work and money flow. By digitising business processes and relationships with customers, suppliers, employees, banks and governments, our digital network connects SMBs, removing friction and delivering insights. Knocking down barriers also means we use our time, technology, and experience to tackle digital inequality, economic inequality and the climate crisis.

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For information, please contact:

Richard Seabrook
Rui Cardoso