More than 1,000 small businesses have told researchers that late payments have become more of an issue over the past 12 months and many are concerned that the number will rise over the next 12.
Half of them say they receive payments that are up to 60 days late.
They were among a sample of 2,000 interviewed by bank payment company GoCardless in a study commissioned through the Federation of Small Businesses.
And with small businesses accounting for 60% of UK employment and 48% of business turnover in 2024, late payments add additional pressure to what is already a tough economic environment.
Many said they forfeit late payments up to 10 times a year to avoid the time and cost involved in chasing them. Meanwhile, over a quarter indicate they’ve had to use short-term financing, such as loans and credit lines, to manage cash flow due to late payments, rising to 40 per cent for respondents in the food & beverage industry and 32 per cent in retail.
The report also points to a late payments “domino effect”, with detrimental impacts on business growth, reputation and mental wellbeing for both employees and business owners: A third said that late incoming payments affect their ability to pay their own suppliers on time and 18% reveal they have impacted their ability to pay employees.
The study uncovered an uneasy acceptance of late payments, with half of respondents agreeing that they are an “inevitable cost of doing business”. Nearly a third felt they have little or no control over how to manage them.
The findings suggest a sense of resignation from small businesses when it comes to late payments. But with nearly a quarter waiting up to an extra 60 days for money that they’re due, it’s time for a change
Although the government publicly pledged to crack down on late payments, many small businesses are looking at actions they could take themselves.
Over half said they would charge late fees in the future to alleviate late payment issues. A third would consider changing payment methods and over a quarter would automate payment processes.
Caroline Lavelle, Chief Commercial Officer at FSB, said: “Our latest Small Business Index reveals small business confidence hit its lowest recorded point since 2020 in the fourth quarter of last year.
“With small businesses already citing the domestic economy as a barrier to growth alongside the tax burden and labour costs, adding late payments to the mix only increases the strain. This latest research shines a light on the sheer scale of the problem, its drag on individual businesses, and the barrier it creates to economic growth.”
Jolawn Victor, Chief Growth Officer at GoCardless, said: “The findings suggest a sense of resignation from small businesses when it comes to late payments. But with nearly a quarter waiting up to an extra 60 days for money that they’re due, it’s time for a change.
“Until we tackle late payments it will be difficult for SMBs to reach their full potential — both as a standalone enterprise and as a collective powerhouse for the UK economy.
“It’s a complex issue with many causes, but customers tell us that one game-changer to taking back control is automating their collections with pull-based payment methods like Direct Debit which, through GoCardless, could get them paid up to 47% faster.
“This is a highly established and preferred way to pay that also eliminates the need to chase late payments, freeing up time to focus on what really matters.”
Download the full report here