Late payments are exerting a significant drag on the UK economy, costing an estimated £11 billion annually. This crippling effect is felt most acutely by small and medium-sized enterprises (SMEs), where nearly half of all invoices – 49 per cent – are paid late, resulting in a 27-day wait for payment after issuing an invoice.
The findings from Sage's research, shared with City AM, highlight the critical cashflow bottlenecks faced by SMEs. With nearly £11 billion drained from the economy each year due to delayed payments, it is no wonder that businesses are struggling to access the capital needed for investment and the adoption of new technologies – a crucial factor in achieving the government's productivity improvements and digital transformation objectives.
Notwithstanding these significant cashflow pressures, UK SMEs continue to demonstrate notable resilience. According to Sage's latest UK SME Pulse data, profits across UK SMEs grew by 7.4 per cent over the year leading up to Q1 2026, representing the strongest growth rate since 2022. Real revenues also saw a 3.2 per cent increase, marking the fourth consecutive quarter of expansion – testament to the sector's ability to perform in challenging economic conditions.
The issue of late payments assumes greater significance given the government's push for increased technology adoption among smaller businesses. Recent research reveals that only 21 per cent of UK SMEs regularly use artificial intelligence (AI), with just six per cent integrating AI into their daily operations. For 53 per cent of firms, cost remains the primary barrier to adopting AI, followed by skills shortages and data privacy concerns. Prompt payments could provide a vital cash injection, enabling more businesses to overcome these hurdles and invest in digital tools and AI systems.
In response to these challenges, the government is progressing its Late Payments Bill through Parliament and exploring solutions such as e-invoicing – set to be introduced from 2029. This system enables invoice data to transfer directly between buyers' and suppliers' financial systems, facilitating payment processing that is typically five to seven days faster than traditional invoicing methods.