Late payments plague SMEs, reports latest research

A staggering 72% of small and medium-sized enterprises (SMEs) in the UK are grappling with outstanding late payments, according to the latest research from Aldermore’s SME Growth Index. This troubling figure translates to over 3.6 million businesses being left out of pocket by an average of £96,772 each, highlighting the ongoing cash flow crisis many SMEs face.

The research, conducted by Opinium in April 2024, surveyed 1,000 senior decision-makers across SMEs. The findings reveal a sharp increase in the total value of late payments, which have surged by 41% from the end of 2023, rising from £68,715 to £96,772 per business. This growing financial burden is causing significant operational challenges for SMEs.

On average, SMEs are now waiting an additional 46 days for payments to be settled, a marked increase from the 34-day wait reported last year. The time spent chasing these late payments has also grown, with businesses dedicating 13 hours per payment—a notable rise from the nine hours reported in 2023.

The ripple effect of these late payments is severe. Over a third (38%) of SMEs report difficulties in paying essential business costs, while 36% struggle to pay their own suppliers on time due to cash flow constraints. These figures represent a worrying increase compared to the previous year, underscoring the escalating financial pressures on small businesses.

The research also reveals the broader impact of late payments on SME growth and competitiveness. Nearly a third (31%) of businesses are delaying key investments, and 30% are missing out on growth opportunities. Furthermore, almost a quarter (24%) of SMEs feel they are losing their competitive edge because they cannot fund strategic decisions, such as hiring new talent.

Ross McFarlane, Commercial Director of Invoice Finance at Aldermore, emphasized the need for a cultural shift in the UK’s payment practices.

“With late payments continuing to be a problem for SMEs, it’s a reminder that a culture shift is needed in the UK where late payments are no longer acceptable,” McFarlane stated. He expressed hope that the newly elected Labour government would implement previously announced measures to tackle late payments, thereby providing much-needed relief to SMEs.

McFarlane also highlighted the importance of prompt payments in freeing up resources for SMEs. “If SMEs are paid promptly, it removes the time they currently need to spend chasing payments and instead they can use this time to focus on investing and growing their businesses. It also releases much-needed cash flow from unpaid invoices, which is particularly important given the current high-interest rate environment.

“At Aldermore, we offer SMEs flexible finance solutions such as invoice finance to help a business quickly release cash allowing them to access the money they need to run and grow their company,” he added.