42% of small firms have been paid late over the past 12 months

Latest data from Enterprise Nation has shown that 42% of small firms have been paid late during the past 12 months, compared with a range of 24% to 34% through 2023 and 2024. Among businesses employing staff, the incidence of late payment has more than doubled since summer 2024.

The report also cites Small Business Commissioner figures showing that approximately £26bn is tied up in overdue invoices at any one time. Encouragingly, the proportion of invoices arriving late for each affected business appears to have eased, but significantly more firms are now encountering the problem.

The wider Barometer makes the cash flow picture even more concerning. 76% of owners now pay themselves less than £20,000 a year, rising to 65% among owners employing staff. Only 41% expect their business to expand during the next year, while the proportion intending to seek external funding has fallen to a record low of 40%.

For entrepreneurs who employ staff the figure is 65%, an increase from 48% last year, which the report by Enterprise Nation said is “evidence that owners are increasingly paying their staff and costs first, and themselves last”.

In other findings, appetite for external funding fell to the lowest point since the quarterly survey began tracking it in Spring 2023. Two fifth of small businesses said they plan to look for finance in the next 12 months, down from a peak of 63% in Autumn 2023.

Among those still seeking funding, the amounts requested have shrunk: 40% wanted under £10,000, up from 27% a year ago, suggesting businesses are looking for smaller top-ups to see them through rather than funding for growth.

Confidence in business expansion fell to 41%, down from 50% a year ago and among the lowest readings recorded across the survey’s history. The sharpest falls were concentrated in food and drink (down 18.6 points to 40%) and general retail (down to 33%).

Against the backdrop of financial pressure, digital adoption continues to accelerate. 64% of small businesses said they now use AI tools such as ChatGPT or Gemini, up from 59% a year ago.

Despite this, fewer businesses describe themselves as “mainly digital” (35%, down from 43%), which the report said “may reflect a changing definition of digital operation: platforms such as Etsy, Instagram and TikTok Shop increasingly offer a ready-made shopfront without the need for a business’s own website.”

When looking at founders by age, 18-24 year-olds were more likely to have started their business as a side hustle (60%) than over-50s (32%). Younger founders were more motivated by earning money and turning a skill into income, while over-50s leant more towards work/life balance.

Both groups said lowering the tax burden should be government’s top priority as the Budget approaches, cited by 54% of 18-24s and 59% of over-50s.

Aaron Asadi, CEO of Enterprise Nation, said “This year’s Barometer shows small business owners absorbing pressure personally. Three in four are now paying themselves less than £20,000 a year, and that number only gets worse once a business takes on staff. People are protecting their teams and their customers by taking the hit themselves, that’s not a sustainable position for the UK’s key driver of the economy.

“At the same time, the funding appetite has hit a record low. That’s not businesses losing ambition, it’s owners telling us plainly that the environment doesn’t currently support the risk of borrowing to grow.

“Ahead of the Budget, we need measures that ease the pressure on owner pay directly, get a grip on late payments, which are now costing small firms £26 billion in overdue invoices at any one time, and restore the confidence to invest in growth again.

“It’s encouraging to see AI adoption continuing to accelerate, but we know only 27% of UK SMEs use AI regularly, just 6% daily, yet AI is the single most in-demand topic across our whole network.

“We can’t ignore that business support isn’t working for everyone, male founders in particular are increasingly coming away empty-handed when they seek advice, and that’s a gap we need to close.”