East & West Midlands outpace London as SME profits reach four-year high

Despite a turbulent economic backdrop, UK small businesses are continuing to show resilience and drive growth in 2026.

As a new study by Sage reveals, SME profits have grown by 7.4% over the past year, reaching their highest level in four years, with the West and East Midlands seeing the sharpest uptick. The findings provide a welcome boost for entrepreneurs trying to survive through rising costs, economic uncertainty, and changing consumer demand.

However, while these figures point to a positive outlook, many businesses continue to face cash flow challenges due to late payments – something which is delaying investment, restricting hiring plans, and placing additional strain on already tight profit margins.

As a result, tackling payment delays is becoming increasingly important for businesses looking to maintain growth and build long-term financial stability.

UK SMEs achieve strongest profit growth in four years

Even with ongoing economic uncertainty, rising operating costs and continued pressure on consumer spending, UK SMEs are showing encouraging signs of growth and strength, proven by impressive growth figures.

According to data from Sage’s SME Pulse report, UK SME profits grew by 7.4% in the year to Q1 2026 – the highest level of growth since 2022. Revenues also increased by 3.2%, marking a fourth consecutive quarter of growth.

In terms of regional growth, the East Midlands is currently leading in profitability, reporting a growth rate of 20.2%, followed by the West Midlands at 16.3% and London 10.6%.

Derk Bleeker, Chief Commercial Officer at Sage, comments: “The UK’s small business community continues to demonstrate extraordinary resilience to adapt and grow.

“The fact that profitability has reached its highest level in four years is a testament to the determination and ingenuity of business owners across the country. It also highlights the opportunity that exists to help SMEs build on this momentum and unlock even greater growth in the years ahead.”

Late payments continue to hinder business growth

While Sage’s findings paint a positive picture, it’s impossible to ignore the difficulties SMEs continue to face, with late payments continuing to put pressure on their finances.

Late payments cost the UK economy £11bn every year, leaving businesses with limited ability to invest, hire, and grow.

According to Sage’s data, 49% of all SME invoices are overdue, with businesses waiting an average of 27 days to receive payment. As a result, businesses are taking an average of 37.1 days to pay back supplier invoices – up from 31.9 days in Q1 2025.

Additionally, research by Bibby Financial Services found that 42% of businesses have been unable to pay employee salaries on time because of delayed payments, while 24% have paused hiring. The government reports that 14,000 businesses close every year due to not receiving payment on time.

“Sage’s data shows that more needs to be done to tackle late payments, with too many small businesses still waiting weeks to be paid.” Emma Jones, Small Business Commissioner, stated.

“That’s why action to improve payment practices is so important. It gives firms greater certainty over their cash flow and the confidence to invest, hire and grow. Tackling late payments isn’t just about fairness; it’s essential to unlocking the full potential of the UK’s small businesses.”

How businesses should tackle late payments

While late payments remain a significant challenge, there are several avenues businesses can take to tackle them and improve their cash flow.

First, businesses should establish payment terms from the start and ensure they are clearly outlined in contracts, proposals, and invoices to help avoid confusion and set expectations for when payment is due. 

If an invoice is already overdue, automated payment reminders can help businesses chase up on them without spending too much time on manual follow-ups. Certain accounting software – such as Xero and QuickBooks – also offer this functionality to save time and cut down on the administrative burden.

Moreover, before entering into agreements with new customers, it’s worth conducting credit checks to assess payment risk and find any potential issues early. The Small Business Commissioner Office (OSBC) also has its own award directory, which ranks companies based on their invoice processing fees – giving businesses better visibility into which organisations have a strong track record of paying suppliers on time.

Finally, with late payment reforms expected to come in next year, businesses should make use of the help available to them from the OSBC to understand their rights, resolve payment disputes, and minimise the impact of late payments. 

Beyond fines, Emma’s new powers also include a 60-day cap for large firms, mandatory interest and boardroom accountability, so it’s definitely worth taking advantage of the resources available through OSBC ahead of the changes coming into force.

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