iwoca warns on SME cash flow pressures

More than a quarter of UK small businesses are operating with limited financial buffers, with 28% holding two months or less of cash in reserve, according to new research from iwoca.

The findings, based on a survey of 1,005 SME owners, highlight ongoing cash flow challenges across the sector, with many firms balancing uneven income, rising costs and delays in accessing funding.

The research also found that 60% of SMEs experience periods where outgoings exceed income for at least half the year, while 38% would need more than 30 days to secure additional finance. Late payments remain a major issue, with businesses owed an average of £22,000.

The report coincides with the launch of iwoca’s new Cash Flow Resilience Benchmark, a free tool designed to help SMEs compare their financial position against similar businesses.

“We hear first hand from SMEs that short runways, late payments and unpredictable revenue flows are their everyday reality, but building resilience isn’t about avoiding those pressures – it’s about preparing for them,” she said.

Desai outlined five key steps businesses can take to strengthen cash flow resilience, starting with more regular forecasting. The research found that one in five SMEs forecast annually or not at all, while only 26% carry out monthly forecasting. “Forecasting regularly can help you spot pressure points early and feel much more confident in your financial decisions,” she said.

Late payments continue to place strain on working capital, with 90% of businesses affected. Desai said tightening payment terms and consistently following up on invoices can unlock funds that would otherwise remain tied up. “That cash that is locked up in unpaid invoices could be supporting your growth, and working for your business,” she added.

Building a financial cushion is another key priority. Nearly three in ten SME owners lack confidence in handling a major disruption, underlining the importance of maintaining reserves to cover essential costs. “That reserve creates vital breathing space if revenues fall or unexpected costs arise,” Desai said.

The research also points to a need for greater awareness of funding options. With many businesses facing delays in securing finance, Desai advised preparing in advance. “Businesses are in a much stronger position when they know where to go before they need it,” she said. “Line up your options while things are stable, so you’re able to make faster and more informed decisions.”

Finally, she warned against focusing solely on profitability at the expense of resilience. “Even profitable businesses can face cash flow issues,” she said. “What matters is whether your cash flow can absorb the ups and downs that come with running a business.”