UK small and medium-sized enterprises (SMEs) are facing a financial crisis that can no longer be ignored, with overdue invoices now totalling £348 billion and the average SME owed £96,772. This growing problem of late payments is not only threatening the survival of these businesses, which form the backbone of the UK economy, but it is also impacting the wider financial ecosystem, including asset finance providers that depend on a healthy, vibrant SME community to survive. As SMEs struggle under the weight of delayed payments, the consequences are rippling through the economy, undermining sectors reliant on their success.
The Labour government, which came to power in July 2024 after 14 years of Conservative rule, has pledged to tackle this issue, but the time for action is now. On 30 October, when the Chancellor of the Exchequer, Rachel Reeves, sets out her fiscal plans in the Autumn Budget, Labour has the opportunity — and the obligation — to bring immediate relief to SMEs.
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The numbers are stark. According to Aldermore’s SME Growth Index, late payments have surged by 48%, with the average SME now waiting 46 days beyond the due date for payments — a sharp increase from 34 days last year. The time spent chasing these payments has also grown, with SMEs spending an average of 13 hours per invoice, up from nine hours in 2023. This lost time is more than an administrative burden; it is a direct drain on productivity, leaving businesses unable to focus on growth, innovation, or even survival.
The ripple effects are significant. Over a third of SMEs are struggling to pay essential business costs, and nearly as many are finding it difficult to pay their own suppliers on time. These cash flow issues are not just slowing down individual businesses but threatening the stability of supply chains and the broader economy. More worrying still, 31% of SMEs are delaying key investments, and 30% are missing out on growth opportunities due to late payments. The knock-on effect is that the UK economy risks losing out on the innovation, job creation, and productivity gains that SMEs typically drive.
Labour has acknowledged the severity of the issue, with promises to introduce legislation that will enforce timely payments and help SMEs unlock funds tied up in unpaid invoices. These measures are aimed at improving cash flow, enabling businesses to invest in skills and technology, and ultimately boosting productivity. However, the urgency of the situation demands that Labour acts sooner rather than later.
The 30 October Autumn Budget statement presents a critical opportunity for Labour to make good on its promises. Waiting any longer risks allowing the crisis to deepen, potentially pushing many SMEs to the brink of collapse. Labour should use this moment to announce concrete measures that will bring immediate relief to businesses. This could include legislation that mandates prompt payments for both public and private sector contracts, with penalties for late payments that are strong enough to deter bad practices.
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By GlobalDataRachel Reeves, as Chancellor, must seize this moment to show that Labour is serious about protecting SMEs. While long-term legislative solutions are important, there are immediate steps that can be taken to alleviate the pressure on small businesses. For example, the government could introduce a fast-track mechanism for SMEs to report late payments and receive rapid intervention. This would not only support cash flow but also send a clear message that delayed payments will not be tolerated.
Moreover, Labour should ensure that these measures are more than just a temporary fix. A robust framework must be put in place to ensure that SMEs are protected from late payments in the long term. This could include the establishment of a regulatory body dedicated to monitoring payment practices and enforcing penalties for non-compliance. Additionally, the government could provide SMEs with access to resources and tools that help them manage cash flow more effectively, reducing their vulnerability to late payments.
The cost of inaction is too great to contemplate. If Labour fails to act on 30 October, the late payments crisis could push thousands of SMEs into insolvency, leading to job losses, a decline in innovation, and a further weakening of the UK economy. SMEs are not just vital to the economy; they are also central to the government’s broader goals of increasing productivity and fostering growth. Labour’s credibility on supporting businesses will be judged by how it handles this crisis.
Late payments cost UK SMEs £97k on average as outstanding debts rise
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