Why late payments are becoming more than just a ‘bad client’ problem

Late payments have always been an unwelcome (but inevitable) part of running a small business. However, for a growing number of SMEs, payment delays are becoming more difficult to absorb as wider cost pressures continue to build.

New research has uncovered that UK SMEs are now owed an average of £66,770 in unpaid invoices, up 10% year-on-year. At the same time, 30% have written off nearly £30,000 due to non-payment or insolvency, while 62% say customers are taking longer to pay than they were a year ago.

Set against a backdrop of rising rents, higher wage bills and ongoing supply chain costs, these delays are becoming more than an inconvenience – they’re tying up cash that businesses increasingly can’t afford to have out of reach. And, for many SMEs, that pressure is forcing difficult decisions about how and when they pay others.

The ripple effect

According to the research, nearly one in five SMEs say they’ve delayed paying their own suppliers to protect cash flow. That makes sense, but it also goes some way to showing how payment delays can spread. 

When one business is paid late, protecting its own cash flow often has to come first, even if that means delaying payments to others. Over time, this can push payment timelines out across entire supply chains, creating a kind of payment traffic jam where cash slows at every stage.

A business that typically pays in 30 days may start taking 45 or even 60 – not because it’s changed its approach, but because it is itself waiting longer to be paid. For SMEs, this makes late payments much harder to both control and predict. 

The great SME finance squeeze

With payment delays increasing alongside persistent cost pressures, SMEs are facing pressure on margins and cash flow at the same time, tightening how much money comes in, when it arrives, and what can be spent or invested back into the business.

As a result, a business can be profitable on paper, but still struggle if significant sums are tied up in unpaid invoices. This can have a direct impact on day-to-day operations, from covering overheads to funding growth. Understandably, this is prompting many small businesses to rethink how they manage both incoming and outgoing risk.

On the cash flow side, invoice finance can be a practical tool, allowing businesses to access a proportion of unpaid invoice value before customers settle (typically up to around 90% upfront) rather than waiting 30, 60 or even 90 days. The remainder will be paid once the customer settles, minus fees. For SMEs with stretched payment timelines, this can make a real difference to day-to-day operations.

Additionally, according to the research, more businesses are now using business insurance to protect against the risk of customers not paying at all. Bad debt protection, often bundled with invoice finance arrangements, can cover outstanding invoices if a customer becomes insolvent or defaults. 

For SMEs already navigating rising costs and tighter margins, proactive cash flow management is becoming increasingly important. Late payments may be unavoidable, but many small businesses are now treating them as a more consistent and recurring feature of trading conditions, rather than an occasional disruption.