SME late-payment crisis: nearly half of invoices paid late in last 12 months

• New research reveals that just under half (49.3%) of invoices sent by UK small businesses in the past year were paid late - up from 43% the year before
• The Isle of Man and East Central London are the worst areas affected in the British Isles, with both experiencing late payment rates above 70%
• Ipswich once again emerges as the best area for timely payments, with just 21.5% of invoices paid late

UK small business owners continue to be plagued by the problem of late payment, according to new research by cloud accounting software company FreeAgent.

Analysis of invoices sent by FreeAgent’s small business customers between June 2023 and June 2024 has revealed the startling impact of late payment on the UK’s SME sector, with almost half (49.3%) of invoices paid late - up from 43% the previous year.

The Isle of Man and East Central London are the areas worst affected by the late payments crisis in the British Isles - with the former seeing 73.2% of invoices sent during the past year paid late, and the latter experiencing a 72.6% late payment rate. In contrast, Ipswich once again remains the area least affected by late payment, with just 21.5% of invoices sent by small businesses within the IP postcode paid late.

Looking at the national picture, Wales (48%) and Scotland (48.5%) have the lowest rates of late payment, closely followed by England (49.3%). In contrast, Northern Ireland is the worst nation in the UK for late payment, with a staggering 62.4% of invoices sent over the past 12 months paid late.

At 49.3%, the UK’s average late payment rate is now higher than it was during the same period the previous year (43% in 2022-2023). It is also higher than it was during the 2020 calendar year (46%), which suggests that the issue is becoming a more prevalent problem for small business owners in the post-COVID and cost-of-living crisis era.

Roan Lavery, CEO and co-founder of FreeAgent, said:“Maintaining a healthy cash flow is the number one priority for anyone running a business. However, the vast majority of small businesses simply don’t have the luxury of being able to absorb late payments into their accounts - they need to get paid promptly to keep themselves afloat.

“It’s therefore very concerning to see that the level of late payment has increased in recent years, and that nearly half of invoices in the UK were not paid on time over the past 12 months. This isn’t just a case of payments coming a few days or weeks late, as some of these invoices take months to settle up or - in some cases - won’t be paid at all. Looking across the country’s five million-strong small business sector, it’s clear to see just how big of a concern this is for the UK.

“Our economy remains in a fragile state, with many small businesses still feeling the impact of major disruption caused by the Covid-19 pandemic and the cost-of-living crisis, so it’s more important than ever to ensure that SMEs are protected and supported. I hope, therefore, that our new government will commit to bringing in new legislation or putting more resources into the Small Business Commissioner’s remit, so that the chronic issue of late payment can be properly tackled.”

A separate survey of small business owners recently conducted by FreeAgent has also revealed how SMEs feel about the issue of late payment in the UK. It found that around a quarter (24.6%) of respondents said they had, at some point, felt the future of their business was in jeopardy because they were not getting paid on time.

The survey also revealed that more than half (55.4%) of respondents felt the Small Business Commissioner should have greater powers to tackle the late payment problem, while 46.1% believed that the Prompt Payment Code (PPC) should be made mandatory for all businesses to follow. In contrast, 16.7% said they thought the PPC should only be mandatory for large businesses with more than 250 employees, while 16.5% said they thought more companies should be incentivised to join the PPC rather than making the scheme mandatory.