Three-quarters of SMEs are uncertain they can cover next month’s bills

Financial difficulties are all too common in today’s business world, with many SMEs reporting concerns over tight profit margins, rising costs, and delayed payments. 

However, a new study reveals that the problem has gotten so bad that three-quarters of small and medium-sized businesses aren’t sure whether they can pay their bills next month.

For a large number of smaller firms, this combination has created an environment where cash flow has become increasingly unpredictable, making it harder to invest, plan ahead, or even cover basic operating expenses.

Three-quarters of SMEs aren’t sure they can meet next month’s bills

While most businesses remain trading, a growing number are finding it difficult to maintain stable cash flow or plan beyond the short term. 

According to data compiled by The Director’s Helpline, 76% of UK SMEs reported that they’re unsure whether they can meet their financial obligations over the next month, particularly those within the hospitality industry.

35% of respondents also said they are likely to miss payments in the coming weeks, while 32% said meeting costs would be “tight”. Moreover, just 33% say they are fully up-to-date with their payments.

Jonathan Cooper, Founder and Director of The Director’s Helpline, says that these findings “reflect a long-standing issue around access to timely, impartial advice when financial pressure begins to build”.

“What this data shows is that many directors are operating month to month under intense pressure,” he continued. “Most of these businesses are still trading, but without stability, clarity or confidence about what comes next.”

What’s driving the cash flow crisis?

While economic conditions and inflation may be the obvious factors behind SMEs struggling to catch up with payments, the problem also stems heavily from late payments from larger companies and customers.

Specifically, small businesses and sole traders are owed an average of £12,357 in late payments every year, while 70% of commercial disputes relate to late or non-payment of invoices.

Moreover, a survey by Hiscox found that late payments were cited as the biggest problem in cash flow, accounting for 58% of businesses. 37% of respondents also said they’re chasing between 10-20 late payments, and that as many as one in five invoices aren’t paid on time.

However, the survey from the Director’s Helpline also suggests that debt from borrowing is also a key contributor, as 78% of businesses reported outstanding debt – 57% owing over £25,000 and 39% reporting debts more than £50,000.

With small business borrowing up by more than 25% last year, it’s clear that many firms are increasingly relying on credit to bridge cash flow gaps, but in doing so are also becoming more exposed to repayment pressure and financial instability when income is delayed.

How SMEs can tackle late payments and improve cash flow

Businesses facing cash flow problems should contact the Office of the Small Business Commissioner, as it can help firms resolve disputes with larger companies, especially where invoices are being ignored or repeatedly delayed.

The OSBC also offers complaint service and can intervene informally to push for faster resolution without going straight into legal action. What’s more, with the Government promising a tougher crackdown on late payments – including fines and investigations – the OSBC has more power to ensure SMEs are paid fairly and on time.

Another useful framework is the Fair Payment Code – a scheme that recognises businesses that commit to paying suppliers on time, with bronze, silver, and gold levels depending on performance. For SMEs and sole traders, this can be useful to find reliable clients who are committed to good payment practices. 

Beyond legal entities, businesses should also set clear payment terms upfront and reinforce them in contracts, send structured reminders before invoices become overdue and charge statutory interest or late payment fees where appropriate. Together, these measures can help reduce reliance on unpredictable payment cycles and help ease struggling cash flows.

Get paid with Emma

Emma Jones is the UK’s Small Business Commissioner, helping businesses get paid on time by tackling late payments and poor payment terms. Read her bi-monthly column for Startups now.

Get paid with Emma