A new study by global payments platform Airwallex, has uncovered the scale of the financial pressure facing the UK’s small and medium-sized businesses, as rising operational costs and late customer payments continue to undermine cash flow and stability.
The survey, which gathered insights from 500 UK SME owners and decision-makers, found that 80% of businesses have experienced a ‘cash flow crisis’ in the past year – with 42% of those citing spiralling overheads like wages, rent and utilities as the primary driver. A further one in three (32%) pointed to late payments from customers as a key contributor, while 18% blamed limited access to finance or credit.
With small businesses making up over 99% of all UK businesses and accounting for around three-fifths of employment, these findings paint a stark picture of the pressures threatening the backbone of the British economy.
Businesses dipping into savings and borrowing privately
In response to cash flow shortfalls, many SME owners are turning to increasingly unsustainable funding methods. Over half (52%) reported using their savings to cover day-to-day costs, while 38% took out business loans to manage shortfalls.
Worryingly, more than a fifth (21%) said they had borrowed money privately from friends or family, while one in four (25%) say they have relied on personal loans and credit cards – a clear signal of the personal toll financial instability is taking.
Top five ways SMEs are managing cash flow problems:
- Savings – 52.36%
- Business loans – 38.46%
- Business credit cards – 31.76%
- Personal credit (such as loans and credit cards) - 24.57%
- Private loans from family and friends – 20.84%
Late payments causing significant financial losses
Late customer payments remain a persistent and costly issue for UK business owners. More than one in 10 business owners (12%) said late payments cost them at least £4,000 every month – this equates to a huge £50,000 loss across the year for SME owners.
While the financial burden plays a big role in the success of a business, the research also revealed how much time SME owners spend on late payments. This reveals that 22% of SMEs have relied on credit or loans to pay their employees and suppliers on time, while almost one in five (18%) have reported frequent delays. Meanwhile, three-quarters (74%) said up to 50% of their invoices are regularly delayed; worryingly, just one in five (19%) have invoices consistently paid on time.
The effort required to pursue late payments is also draining valuable time from business owners. 58% said they spend up to five hours a month chasing overdue invoices, while 17% said it takes up to 10 hours, which is valuable time that could be invested in growth and operations.
When tackling non-paying clients, SMEs are deploying a mix of approaches:
- 58% send reminders and follow-up communications
- 33% apply late payment fees or interest charges
- 22% escalate to debt recovery or collections agencies
- 14% end up writing off the debt entirely
Overall, 10% of SMEs said they frequently write off unpaid invoices, and 40% do so occasionally – highlighting a level of revenue loss that, for many small businesses, can be difficult to absorb.
Immy Spence, Head of Sales, SME and Growth at Airwallex EMEA said: “SMEs are the engine of the UK economy, but many are operating on a knife edge due to rising costs and unreliable customer payments. Cash flow gaps shouldn’t be forcing business owners to dip into personal savings or take on avoidable debt.
“These insights highlight just how urgently we need better tools and support for small businesses to manage finances more efficiently and sustainably.”
Made possible by Joseph Eskenazy of READY10 for Airwallex.