UK SMEs are seeing growth, but late payments are still holding them back

UK small businesses are posting their strongest profitability growth in four years, but new data from Sage suggests that the persistent late payments problem is still acting as a drag on momentum.

According to Sage’s latest SME Performance Pulse, UK SME profits increased by 7.4% in the year to Q1 2026, up from 5.5% in the previous quarter. That marks the highest rate of profit growth since 2022, and continues a steady upward trend across recent quarters. 

Revenues are also rising, up 3.2% over the same period, extending a run of four consecutive quarters of growth.

Against a backdrop of modest but improving wider economic conditions (UK GDP grew 0.6% in Q1 2026, according to ONS figures) SMEs are showing resilience. But the headline growth figures mask a structural issue that continues to affect day-to-day operations: cash flow delays caused by late payments.

Nearly half of invoices are still overdue

Despite improving profitability, nearly half of SME invoices (49%) remain overdue. Sage found that, on average, businesses are waiting around 27 days after issuing an invoice to be paid. Such delays can create a ripple effect across the supply chain, as SMEs themselves take an average of 37.1 days to pay their suppliers.

These figures point to a system where growth is happening, but liquidity is under constant strain. Even businesses that are technically profitable can find themselves short of cash at critical moments, forcing them to delay investment, scale back hiring plans, or rely on short-term financing to bridge gaps.

In response, some SMEs are turning to cash flow tools such as invoice finance, which is allowing them to unlock the value of unpaid invoices before customers settle them. Rather than waiting weeks for payment, firms can access a large proportion of the invoice value upfront, helping to smooth cash flow and maintain day-to-day operations.

While not a solution to late payments themselves, tools like this can act as a buffer for businesses that are otherwise growing but constrained by delayed income, particularly in sectors where extended payment terms remain standard practice.

Industry estimates suggest the impact is far from marginal. Late payments are thought to cost the UK economy around £11 billion a year, underlining the scale of the issue and its knock-on effects on productivity and growth.

Growth is happening (but some areas are smiling more than others)

Sage’s data also highlights how uneven SME performance is across the UK. The East Midlands is currently leading the way in profitability growth at 20.2%, followed by the West Midlands at 16.3%, and London at 10.6%.

At a more local level, Derby stands out for two-year revenue growth, recording 43.6%, and ranking first among UK cities for the third consecutive quarter. But even in stronger-performing regions, the late payments issue persists.

Policy pressure is building

The Small Business Protections (Late Payments) Bill, which is currently progressing through Parliament, will introduce stronger consequences for persistent late payers, including financial penalties designed to discourage delayed settlement of invoices.

Alongside this, the government is also pushing ahead with plans to introduce mandatory VAT e-invoicing from 2029, which is expected to speed up processing times and reduce administrative delays. 

For campaigners and small business advocates, these changes are long overdue. Late payments are not just an administrative nuisance, but a structural barrier to growth; one that can determine whether otherwise successful businesses are able to expand or are forced to stall.

The latest data paints a dual picture of the UK SME landscape. On one hand, businesses are growing, profits are rising, and revenue momentum is strengthening. On the other, cash flow remains fragile, with widespread delays in payments undermining financial stability.

The result is a sector that is clearly resilient, but still constrained. Until payment practices improve more broadly, many SMEs may continue to find that their biggest challenge is not demand or ambition, but simply getting paid on time.