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Over 40% of SMEs say they’re unable to pay staff on time, and a quarter have been forced to pause hiring as a result of delays with invoices being paid.
According to the survey by Bibby Financial Services (BFS), small businesses are owed an average of £66,770, up 10% since the first quarter of 2025.
In other findings, 62% said customers are taking longer to pay invoices in full compared to a year ago, and 41% admitted to dipping into emergency funds to stay afloat in past 12 months.
Late payment has long been an issue for the UK’s small businesses, with data from the Small Business Commissioner, who helps small firms tackle overdue invoices, showing 14,000 businesses close each year as a result of late payments, equivalent to 38 firms a day.
Analysis of the payment performance of large companies released earlier this week found that they paid late around £8.75 billion of supplier invoices in the six months until December 2025.
The government consulted last year on new measures to tackle late payment, including increasing the enforcement powers of the Commissioner. Its response to the consultation is expected soon.
Two-thirds of respondents to the BFS survey said there should be serious consequences for businesses that repeatedly pay late, while 27% called for the government to implement specific legislation to protect them.
Derek Ryan, CEO for North West Europe at Bibby Financial Services, said:
“With economic growth already faltering, late payments are a significant threat to the survival of SMEs across the country, applying pressure to businesses already battling high operating costs. When firms are forced to make impossible choices – between hiring and surviving, dipping into emergency funds or struggling to pay staff on time – it’s a clear sign the government needs to step in.”
Tim Gelardi, director of systems and compliance at FORT Builders’ Merchant, added:
“We are seeing more customers struggling to pay in line with terms, often because they’re facing late payments themselves or failing to secure the margins they expected when bidding for work. Operational and raw material costs are also unpredictable. If prices spike, there’s no guarantee that our customers have factored that into their budgets.
“There are several knock-on effects. Late payments force us to waste time chasing customers and require us to implement more official collection procedures which can damage relationships.
“The situation has meant that we’ve shortened our timescales on customer terms, curtailing supplies earlier – just to get our name in the hat when customers decide who to pay first. At the end of the day, we’re a builders’ merchant, not a bank.”
Derek Ryan continued:
“Late payments are draining confidence from small businesses and holding back growth. While the Government laid the groundwork for change to the payments framework in last year’s consultation, SMEs are desperate for action, and many are turning to alternative finance for the support they need. If the government is serious about kickstarting the economy, it must back SMEs with policies that provide certainty that enables businesses to invest in their people, products and services.”
