A new report from bank payment provider GoCardless, in collaboration with the Federation of Small Businesses (FSB), highlights the growing burden of late payments on UK small and medium-sized businesses (SMBs).

According to the survey of over 2,000 SMBs, 45% have seen an increase in late payments over the past year, while half expect the issue to worsen in the coming 12 months. Alarmingly, nearly a quarter (24%) report receiving payments up to 60 days late, compounding financial strain.

More than half of UK small businesses forced to write off late payments

With small businesses making up 60% of UK employment and contributing 48% of total business turnover in 2024, the economic consequences of late payments are significant.

More than half (52%) of SMBs say they write off late payments up to 10 times a year due to the cost and effort of chasing them. Additionally, over a quarter (28%) have resorted to short-term financing options, such as loans and credit lines, to manage cash flow disruptions caused by delayed payments. The impact is even greater in sectors like food & beverage (40%) and retail (32%).

The report also reveals a ‘domino effect’ where late payments disrupt business operations. More than a third (36%) say late payments prevent them from paying their own suppliers on time, while 18% struggle to pay employees as a result.

Overall, 61% of SMBs believe late payments are holding their business back, with the concern even higher in the food & beverage (67%) and manufacturing (64%) sectors.

Despite the challenges, many small business owners see late payments as an unavoidable part of doing business. Half (50%) of respondents describe them as an ‘inevitable cost,’ while nearly a third (32%) feel powerless to manage them effectively.

The perception of control over late payments varies depending on the source. Half of SMBs believe they have little to no influence over payments from large businesses, compared to 30% for small business clients and 26% for individual consumers.

Businesses are developing their own solutions

Although the Labour government has pledged to address the issue, many small businesses are exploring their own solutions. Over half (53%) say they would consider introducing late payment fees, while a third (33%) are looking at alternative payment methods. More than a quarter (27%) plan to automate payment processes to reduce the risk of delays.

Caroline Lavelle, Chief Commercial Officer at FSB, commented: “Our latest Small Business Index shows confidence among small firms hit its lowest level since 2020 in the final quarter of last year. With economic pressures already mounting due to taxation and labour costs, late payments only add to the strain. This research from GoCardless underscores the scale of the issue and the urgent need for change.”

Jolawn Victor, Chief Growth Officer at GoCardless, added: “The findings reflect a troubling sense of resignation among SMBs when it comes to late payments. However, with nearly a quarter waiting up to 60 extra days for funds they are owed, change is imperative. Until we address this challenge, SMBs will struggle to reach their full potential – both individually and as a vital driver of the UK economy.

“While the issue is complex, businesses can take control by automating collections using pull-based payment methods like Direct Debit. GoCardless data shows this can speed up payments by up to 47%, eliminating the need for repeated follow-ups and allowing SMBs to focus on growth.”