B2B Cash Flow: Tackling the Impact of Unpaid Invoices with B2B BNPL

Published 4th July, 2023

In the UK, a 2022 Barclays study revealed that 58% of SMEs experienced late invoice payments from customers. For medium-sized enterprises with 50 to 249 staff, the number waiting on late payments soared to 94%.

The impact of late invoice payments and unpaid invoices has never been greater, especially after businesses slowly recover from COVID-19. In 2022, for example, more than half of all invoices sent to construction firms were paid late.

So it’s not surprising that a quarter of SMEs see survival as their main goal in 2023. With as many as 20% of invoices paid 2 weeks overdue, the knock on effects can ultimately lead to insolvency.

The fact is, late or unpaid invoices tie up valuable resources, hinder growth opportunities, and increase the risk of financial instability.

However, there is a solution that can alleviate these challenges and provide a lifeline for businesses: Buy Now, Pay Later (BNPL) payment solutions for B2B. 

In this article, we’ll be taking a closer look at the true business impact of unpaid invoices and late payments, as well as how B2B BNPL can help overcome these issues.

Table of contents

  1. The impact of unpaid invoices
  2. What actually causes late payments or unpaid invoices?
  3. How to prevent late invoice payments
  4. How to handle unpaid invoices
  5. Your rights if your customer doesn't pay
  6. How Two can help

The impact of unpaid invoices

Unpaid invoices can disrupt a business's financial stability in several ways and while the knock on effects are fairly obvious, it’s important to understand the true extent of what can happen to your business.

Cash flow issues: When invoices go unpaid, businesses struggle to maintain a healthy cash flow. This situation can lead to difficulties in meeting expenses, paying suppliers, investing in growth opportunities, or simply covering day-to-day operational costs.

Increased debt and cost of capital: Unpaid invoices often force businesses to rely on external financing options, such as invoice financing, debt factoring, or loans or lines of credit to bridge the cash flow gap. The issue is that these forms of financing cost time and money. Interest fees mount up, hours are spent organising paperwork, and customer relationships are strained.

Stifled Growth Opportunities: Lack of timely payment can limit a business's ability to invest in growth initiatives. Without a steady influx of cash, businesses may miss out on crucial opportunities to expand, innovate, or acquire new customers.

Operational Inefficiencies: Chasing unpaid invoices consumes valuable time and resources. Businesses must divert their attention from core operations to pursue late invoice payments, resulting in decreased productivity and added administrative burden.

Strained Relationships: Unpaid invoices can strain relationships with clients and suppliers. Late invoice payments can damage trust, hinder future collaborations, and even lead to the loss of valuable business partnerships.

Other than the immediate cash flow issues caused by unpaid invoices, there are also longer-term impacts. If a customer fails to pay an invoice, it’s unlikely that they will remain a customer, especially a loyal one. Known as involuntary churn, the customers represent those who stop buying from you as a result of failed payment.

The more customers that fail to make payment (and therefore stop being customers), the higher the churn rate and loss of earnings.

What actually causes late payments or unpaid invoices?

Late payments and unpaid invoices can happen for various reasons. Financial constraints are a significant factor, as B2B customers may face cash flow issues or unexpected expenses, leading to delayed payments.

Inefficient payment processes, such as disorganised invoicing or internal communication breakdowns can also contribute to payment delays.

Another common cause is the lack of proactive follow-up on outstanding invoices. Businesses may fail to provide adequate reminders or allocate sufficient collections resources, leading to delayed payments. Administrative errors, such as incorrect invoice details or outdated customer information, also play a role in payment delays.

Of course, if you’re a smaller business and don’t have the resources to perform a full credit and ID check of your customers, you may find yourself in a situation where you wrongly approve people for credit. This can also lead to issues with late payments or unpaid invoices as they should never have been offered trade credit in the first place.

Stuck chasing late payments? A 2022 Barclays study revealed that 58% of SMEs experienced late invoice payments from customers. For medium-sized enterprises with 50 to 249 staff, the number waiting on late payments soared to 94%.

Download our free CFO's guide to Buy Now, Pay Later for B2B ebook to learn more about upfront payments, reduced admin, and improved operational efficiency.

How to prevent late invoice payments

With 20:20 hindsight, the most obvious way to avoid unpaid invoices is to make sure they don’t happen in the first place. Of course, if you’re unlucky enough to find yourself chasing unpaid invoices, you’ll need to follow a different course of action (skip to this section to learn more).

To ensure you get paid on time for your sales on trade credit, we’ve pulled together a simple infographic:

How to handle unpaid invoices

Handling an unpaid invoice is an all too common issue many businesses face. In the UK, for example, 30% of invoices are not paid on time. Having a comprehensive process for collecting these due payments is vital to ensure you get what you’re owed.

Depending on how effective your accounts receivable process is, you may already have steps that you follow to achieve this. This process as known as dunning.

Dunning: The process of actively pursuing payment from customers or clients who have failed to fulfil their financial obligations, typically in relation to overdue invoices or unpaid bills.

Let’s look at some of the common steps involved in the dunning process:

If previous attempts to collect the debt have failed, consider using a debt collection agency. These agencies specialise in recovering missed payments.

If prior reminders and warnings haven't worked, initiate a legal dunning process. Typically, send at least two warnings before starting this process. To begin, send a dunning notice with an unmet payment deadline or a deadline exceeded by 30 days.

Your rights if your customer doesn’t pay

Depending on the country your business is based, you’ll have different rights and protocols that you follow in an attempt to collect due payments. Below you’ll find the various steps you can follow if you’re based in UK, Norway, or Sweden:

United Kingdom:

  • Late Payment Legislation: The UK has the Late Payment of Commercial Debts (Interest) Act 1998, which entitles businesses to claim interest, compensation, and reasonable recovery costs for late payments from other businesses.

  • Statutory Late Payment Interest: Businesses have the right to charge statutory late payment interest on the overdue amount, calculated based on the Bank of England's reference rate plus 8%.


  • Late Payment Act: In Norway, the Late Payment Act provides protection to businesses against late payments. It sets out interest rates and compensation for recovery costs in case of non-payment.
  • Statutory Late Payment Interest: Businesses are entitled to claim statutory late payment interest, calculated at a rate of the Norwegian National Bank's reference rate plus 8%.


  • Interest Act: Sweden's Interest Act allows businesses to claim statutory interest on late payments. The interest rate is determined based on the Swedish National Bank's reference rate plus 8%.
  • Debt Collection Agencies: Businesses can engage debt collection agencies to assist in recovering unpaid invoices. These agencies follow specific guidelines and regulations for debt collection.
  • Legal Proceedings: If all attempts to collect the debt fail, businesses can file a lawsuit in court to enforce payment. The court process may involve hearings and judgments to determine the outcome.

How Two can help

The steps listed above are available for anyone to use. In fact, if you offer trade credit, you should absolutely have something similar in place already. Failing to do so will just lead to lost sales and reduced profit.

There is, however, a simpler way to make sure you never find yourself in that position again.

Upfront payments

When you offer Two to your B2B customers, you always get paid upfront. This means you no longer need to wait until the end of the invoice term. Having immediate access to the money you’re owed drastically improves your cash flow, allows you to invest back into your business!

Take Kandidate, for example, a London based embedded recruiter and talent sourcing company and customer of Two. Using Two’s B2B payment solution, they were able to fix their cash flow issues once and for all!

Automatic payment collections

When you offer Two as a B2B payment method, Two handles all the admin. Instead of spending hours, days, or weeks chasing individual customers down for what you’re owed, Two manages this for you.

This amounts to a huge amount of potential time saved. For example, RiktigHandel was able to save 20 hours a month after using Two’s B2B payment solution!

Offset credit risk

One of the major challenges with offering trade credit is establishing how likely a customer is to pay you on time. Performing these checks yourself can be extremely time consuming and working with a 3rd party can be costly.

Using Two allows you to offset the credit risk associated with offering trade credit, leaving you free to sell and get paid without the worry.

To learn more about how Two can help your business increase cash flow, reduce admin, and offset credit risk, make sure to speak to one of our experts.