Late and unpaid invoices are crippling UK SMEs. Cash tied up in billing disputes or long payment terms causes critical cash flow gaps, leaving small firms vulnerable.
Experts estimate that late payments cost the UK about £11 billion each year and contribute to roughly 38 businesses failing every day. The construction industry is the worst hit: 4,056 construction firms went insolvent in 2024-25, the highest of any sector. With industry profit margins already thin, even a single delayed invoice can halt payroll and force layoffs. In many cases, unpaid invoices have directly triggered insolvencies and cascaded bankruptcies down the supply chain.
Carillion collapse and subcontractor fallout
When Carillion went into compulsory liquidation in January 2018, it set off a cascade of trouble. The construction giant owed around £900 million to creditors, and tens of thousands of subcontractors suddenly found themselves unpaid. One Oxfordshire landscaping firm, for example, had £1 million in invoices unpaid and immediately laid off a quarter of its staff.
Across the UK supply chain, subcontractors began furloughing workers and worrying about bank debts. Some estimates suggested 30,000 small companies were owed money by Carillion. Many subcontractors reported that their lenders were demanding repayment because Carillion’s bills remained unpaid. The collapse demonstrated how a large contractor’s insolvency can rapidly push fragile SMEs to the brink, echoing analysts’ warnings that “cash flow problems…can end up in insolvency”.
Buckingham Group’s unpaid debts
In September 2023, Buckingham Group Contracting collapsed, with only part of its business sold off. Administrators revealed that subcontractors were owed well over £100 million on unfinished projects. For instance, one major contract (Liverpool’s Anfield stadium expansion) alone left around £20 million in unpaid invoices for its suppliers. As one sub-contractor explained, “the amount of cash owed to subcontractors is horrendous” and “north of £100 million” in total trade debts. Many smaller firms working on Buckingham projects suddenly faced massive holes in their accounts, forcing some to negotiate emergency funding or go into administration. This case underlines that even mid-tier contractor failures can inflict multi-million pound losses on dozens of specialists, setting back projects and costing jobs.
ISG collapse and ripple effects
The September 2024 collapse of ISG, the largest UK construction insolvency since Carillion, again illustrated the peril. Hundreds of subcontractors found themselves holding huge, uncollectable invoices. In one high-profile example, Seventynine Lighting (a commercial lighting firm) was left with nearly £2 million of unpaid ISG invoices. That sum was “an insurmountable loss” that forced Seventynine to cease trading and enter administration. Across ISG’s supply chain, Ernst & Young (the administrator) initially identified £190 million in suppliers’ losses. Trade bodies warned that “hundreds of subcontractors and their employees [now] face significant uncertainty” as cash dries up. Many smaller subcontractors, especially scaffolding and finishing companies, operate on tight margins and cannot absorb these debts. Industry groups have noted that lessons from Carillion were not heeded: the same problem of late payments remains “devastating” for subcontractors.
How unpaid invoices cause insolvency
These case studies reveal a familiar pattern. Subcontractors typically pay their staff and suppliers weekly or monthly, but can wait 30–90 days (or more) for their own payments. This mismatch means that one big unpaid invoice can break a firm’s cash flow. According to researchers, late payments are a daily struggle for UK subs. In one survey, 27% of subcontractors said late payment was their biggest worry. As one managing director observed after Carillion, his business was profitable, but noted “we can’t trade out of a black hole” of unpaid bills.
In practice, many subcontractors survive on credit or limited savings. When invoices go unpaid, creditors and banks lose confidence quickly. As Rudi Klein of the Electrical Contractors’ Association warned during Carillion’s collapse, lenders were “anxious” and checking clients’ losses. Without intervention (like additional lending), firms can run out of cash and be forced into liquidation. In short, unpaid invoices freeze cash flow and, if not resolved, directly push firms towards insolvency.
Consequences for UK businesses
When a subcontractor fails, the impact ripples further. In many cases, employees are laid off, sometimes hundreds, when larger SMEs collapse. In Carillion’s case, for example, a forestry and groundworks contractor had to send home dozens of workers mid-project. Suppliers and small businesses that extended credit also write off debts, causing them to tighten up credit or lay off staff. The strain isn’t just on construction: infrastructure projects stall, and local economies feel the shock. Industry reports note that late payment has “plagued the sector for too long, forcing businesses to shut up shop.” This isn’t hyperbole: small UK businesses across industries are collectively £26 billion out of pocket in late payments. In construction alone, one study found 18% of invoice payments were made past their due date in 2024. Unpaid invoices also undermine growth: firms spend hours chasing payments instead of investing in new work. In summary, the human and economic cost is severe: wages stop, contracts stall, and viable companies fold under the weight of unpaid billing.
Invoice financing as a lifeline
One proven solution is invoice finance, which allows a business to unlock funds tied up in its receivables. Invoice finance is a short-term lending product that lets you borrow against the value of your unpaid invoices. Essentially, a provider advances a large percentage (often 80–90%) of each invoice almost immediately, rather than the subcontractor waiting 30–90 days for the client to pay. When the invoice is paid by the client, the lender remits the balance (minus fees) to the business. Crucially, invoice finance advances you on the cash you’re owed without creating new debt: you’re simply getting paid early for work you have already done. In practice, this can be a game-changer for contractors facing long payment terms or late-payers.
By converting invoices into immediate working capital, a subcontractor can pay wages and suppliers on time, reducing the risk of collapse. In one testimonial, a client noted that using invoice finance “allocated temporary funding…perfect timing, all in less than 48hrs” to overcome late public-sector invoices. Invoice finance is a powerful tool to bridge cash-flow gaps caused by unpaid bills.
Rise Funding also offers other funding options for urgent cash needs. For example, fast business loans or bridging finance can inject cash where needed (though they often come with higher costs). Our guides note that while invoice financing helps with overdue bills, some contractors also turn to short-term loans mid-project, but these require careful planning as rates can be high. Unlike long-term loans, invoice finance is considered more of a facility: interest and fees vary, and approval can be very quick with only a soft credit check. Rise Funding’s advisors can match you with lenders offering suitable invoice finance solutions, often providing offers within days.
Conclusion
For UK subcontractors, unpaid invoices are existential threats. Case after case shows that when a large contractor fails, the domino effect can bankrupt dozens of smaller firms. The good news is that solutions exist. Timely invoice financing can keep cash flowing through the business during disputes or industry downturns, potentially averting insolvency. Subcontractors facing late payers should also explore quick funding options and insist on stronger payment safeguards in their contracts.
At Rise Funding, we help contractors and businesses access invoice finance and other funding quickly, so they can draw cash from unpaid invoices and smooth out cashflow. By acting early, SMEs can avoid the “cash flow black hole” that has sunk many businesses in the past. In the tough UK market, protecting your payments is critical, and invoice financing is a key part of that strategy.
If you’re looking for a business finance quote, but are unsure where to go, then you can get a quote via our website. We offer access to all types of lenders and also equip you with the knowledge to understand which finance product is right for you. This quote will not affect your credit score and you can receive funding in as little as 24 hours.
