UK SMEs cut payment terms as late payments squeeze cashflow

Four in ten UK SMEs have been forced to shorten customer payment terms to protect their cashflow as businesses face growing levels of unpaid invoices, according to new research from Bibby Financial Services (BFS).

The latest BFS SME Confidence Tracker found that 60% of businesses believe customers are taking longer to pay than they were a year ago, while SMEs are now owed an average of £72,000 in outstanding invoices.

For mid-sized businesses, this figure rises to £143,000.

The findings come as late payments remain a focus for government policy. The Commercial Payments Bill, introduced to Parliament in May, proposes measures including maximum payment terms of 60 days, mandatory interest on late payments and stronger powers for the Small Business Commissioner.

The research, conducted among more than 1,000 UK SME owners and decisionmakers, also highlights wider pressures across supply chains.

Average bad debt has risen above £30,000, while 58% of SMEs said at least one supplier had either ceased trading or become insolvent during the past six months. More than half (55%) reported experiencing the same among their customers.

Keith Fryer, Director of Business Development at FORT Builder’s Merchant, said: “More customers are struggling to pay us on time than ever before, often because they’re dealing with late payments themselves. Chasing late payments is a time drain, our time and resources are precious. At the end of the day, we’re a builders’ merchant not a bank.

“Invoice finance has been vital in providing the cashflow we need to maintain and grow our business despite these challenges. While we’re in the green, we know many who aren’t, when all they need is the right funding, and easier access to it. In some ways, it’s that simple to help small businesses like ours grow.”

BFS found that access to external finance is also becoming more difficult, with more than half of SMEs saying it is harder to obtain funding than it was at the beginning of 2026.

Among businesses using or considering finance, 25% said they had experienced a funding application being declined, while 32% reported having credit lines reduced by lenders during the past six months.

“Late payment finally seems to be on the Government’s agenda with the Commercial Payments Bill, which is encouraging. But SMEs need more support.

“Even at 30 days, payment terms cause cashflow headaches for businesses that need to pay staff, suppliers, rent and rates. It’s for this reason many are turning to external sources of finance, but our data shows that for some firms, accessing the finance they need is becoming more difficult than even just six months ago.”

The findings come ahead of Chancellor John Healey’s first Budget on 28 October.

Almost a third (32%) of SMEs surveyed want robust late-payment legislation to be in place by the end of the current Parliament, while 36% want recent business rates measures for retail and hospitality businesses to be extended to other sectors.

Ryan added: “The new Government has a fantastic opportunity to stimulate growth in the economy as we move into the final quarter of the year. SMEs must be at the heart of this.

“But many are still facing significant challenges relating to the cost of doing business and accessing the funding they need to grow. Addressing late payment is a good start, but it’s essential they have the support they need to adapt to new legislation. If the Government wants to grow the economy, access to finance must also be a priority.”