UK SMEs Battle Growing Cash-Flow Pressure as Late Payments Persist

Late payments are putting increasing pressure on small and medium-sized businesses across the UK, with many companies being forced to tighten their own payment terms as they wait longer to receive money from customers.

New research from Bibby Financial Services found that 60% of UK SMEs say customers are taking longer to pay than they were a year ago. Businesses are now owed an average of £72,000 in outstanding invoices, while the figure rises to £143,000 for mid-sized firms. Forty per cent of SMEs have responded by shortening the payment terms they offer customers.

The problem extends beyond individual businesses. Late payments can create a chain reaction in which companies delay paying their own suppliers because money owed to them has not arrived. Recent data from the Small Business Commissioner shows that 64% of UK businesses have paid suppliers late because their own customers paid them late.

For smaller companies with limited cash reserves, the consequences can be significant. Money tied up in unpaid invoices cannot easily be used to purchase stock, pay employees, invest in equipment or take on new opportunities.

The issue is now also attracting a stronger legal response. The UK government's Commercial Payments Bill proposes maximum 60-day payment terms, mandatory interest on late payments and stronger enforcement powers for the Small Business Commissioner. The government estimates that late payments cost the UK economy around £11 billion annually and contribute to the closure of 38 businesses every day.

For UK SMEs, however, the real test will be whether stronger rules translate into faster payments. Until then, many small businesses remain caught between delivering work today and waiting weeks or months to be paid for it.