A new report from bank payment company GoCardless, commissioned through the Federation of Small Businesses (FSB), has revealed late payments are not only a perennial concern for small and medium businesses (SMBs) -- they’re a growing one too.

A survey of over 2,000 small business respondents found that 45% are experiencing more late payments than 12 months ago, and 50% are concerned the number of late payments will rise over the next 12 months. Already, nearly a quarter (24%) of SMBs say they receive payments that are up to 60 days late.  

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. 

The impacts

52% of respondents say they forfeit late payments up to 10 times a year to avoid the time and cost involved in chasing them. Meanwhile, over a quarter (28%) 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% for respondents in the food & beverage industry and 32% 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: 36% of SMBs say 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.

More broadly, 61% of small businesses say late payments are holding back their business from achieving its full potential, with 67% and 64% of respondents in the food & beverage and manufacturing industries, respectively, agreeing with this statement.

Lack of control

The study uncovers an uneasy acceptance of late payments, with half (50%) of respondents agreeing that they are an ‘inevitable cost of doing business’. Nearly a third (32%) feel they have little to no control over how to manage late payments. 

The perceived lack of control varies based on the payer. 50% of respondents believe they have little or no control over late payments from big business customers, compared to 30% from small business customers and 26% from consumer payers. 

Seeking solutions

Although the Labour government publicly pledged to crack down on late payments, many small businesses are looking at actions they could take themselves.

Over half (53%) of respondents say they would charge late fees in the future to alleviate late payment issues. A third (33%) would consider changing payment methods and over a quarter (27%) 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 from GoCardless 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.”