UK SMEs Slash Payment Terms as Unpaid Invoices Hit £72,000 Average

Quick Summary

UK small businesses are currently owed an average of £72,000 in unpaid invoices, leading 40% of firms to aggressively shorten customer payment terms. As SME late payments escalate, 60% of business owners report slower payment cycles compared to last year, threatening overall supply chain stability.

How are late payments impacting UK SME cashflow?

The rising tide of SME late payments has created a significant liquidity crunch for small and medium-sized enterprises. According to data from Bibby Financial Services, the average amount owed in outstanding invoices has reached £72,000, a figure that nearly doubles to £143,000 for mid-sized firms. This financial strain is compounded by a rise in bad debt, which now averages over £30,000 per business.

• 60% of businesses report customers are taking longer to pay than in 2025.
• 58% of SMEs have seen a supplier go insolvent in the last six months.
• 55% of SMEs have experienced customer insolvencies.

Why are businesses cutting customer payment terms?

To mitigate the risks associated with SME late payments, 40% of UK businesses have proactively reduced payment windows for their customers. This defensive strategy aims to protect internal cashflow and reduce exposure to potential defaults. However, this shift often creates a domino effect throughout the supply chain, as smaller firms struggle to meet tighter deadlines while waiting for their own invoices to be settled.

"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." said Keith Fryer, Director of Business Development at FORT Builder’s Merchant.

What results has invoice finance delivered for stressed firms?

As traditional lending becomes harder to access—with 25% of SMEs reporting declined funding applications—many are turning to invoice finance solutions to bridge the gap. These tools allow businesses to unlock capital tied up in unpaid invoices, providing the working capital necessary to pay staff, rent, and suppliers without waiting for 30- or 60-day cycles to complete.

"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." said Derek Ryan, CEO for North West Europe at Bibby Financial Services.

FF NEWS TAKE:

The fact that 40% of SMEs are forced to weaponize their payment terms is a clear distress signal for the UK economy. While the Commercial Payments Bill offers hope, legislative speed is rarely a match for cashflow insolvency. Tackling SME late payments is no longer just a policy goal; it is a survival requirement. Without easier access to alternative finance, the insolvency contagion currently hitting 58% of suppliers will only accelerate.