Three in 10 small businesses short of cashflow finance are paying staff late, survey shows

Small business owners say late wages mean “the cashflow problem has already gone too far” and urge firms to “manage working capital before it manages you”, as three in 10 firms short of cashflow finance paid staff late.

Almost half (48%) of small and medium-sized enterprises (SME) employers that sought cashflow finance in the past 12 months but did not secure all of it paid their suppliers late as a result, and three in 10 (30%) paid their staff late, the Small Business Survey published by the Department for Business and Trade for the year 2025, shows.

Four in 10 leaned on an existing overdraft or tightened payment terms for their own customers, while 38% turned to existing credit cards.

Nearly three quarters of SME employers that sought external finance wanted it for working capital or cashflow, most often to cover the gap until customers paid.

Of those that needed finance but held back from applying altogether, 64% did not want to take on additional risk. More than half said economic conditions made it the wrong time or expected it to be too expensive. Almost two in five assumed they would be rejected.

Small business owners and advisers told Newspage that late wages and supplier bills signal a cashflow problem that has already gone too far, and that the time to act is when a forecast first shows the gap.

They said credit cards and overdrafts often cost far more than owners realise, while invoice finance, asset finance and HMRC payment plans are routine tools that many firms overlook.

What should owners do before pay runs late?

Nouran Moustafa, Practice Principal & IFA a  Roxton Wealth, said: “If you are paying staff or suppliers late, the cashflow problem has already gone too far. The time to act is when the forecast first shows the gap. Build a rolling cashflow forecast, get invoices out immediately, chase aged debt properly and speak to lenders before desperation removes your options.

“Business owners also underestimate what is available. Invoice finance can unlock cash tied up in unpaid invoices, while overdrafts, revolving facilities, asset finance and business loans can all have a place depending on what is causing the gap. Credit cards are convenient, but convenience can become very expensive working capital if balances simply roll every month.

“And ‘now is not the right time to borrow’ can be sensible. But avoiding finance purely because you assume you will be declined is different. Borrowing should solve a temporary cashflow problem. It should never be used to disguise a business model that permanently runs out of cash.”

Harvey Dhillon, Founder & CEO at Zmartly, said owners should cut what they take out of the business before suppliers or staff are kept waiting.

He added: “Start with what the owner takes out: cut it before suppliers or staff wait for their money. Then check the tax calendar. For many small firms the gap is a VAT bill or Corporation Tax landing in the same month as a slow payer.

“HMRC’s payment plan is the finance owners assume they won’t get. It isn’t automatic, because HMRC checks it’s affordable first. There’s no fixed time limit, and interest is 7.75 per cent today, the Bank of England rate plus four percentage points. For VAT, asking for a plan within 15 days of the due date can avoid a late payment penalty.

“Compare the plan with putting the bill on a company credit card: HMRC charges a non-refundable fee, then the card’s interest comes on top. To the owner who has decided not to borrow: once HMRC is owed, it can ask a company’s directors to put in their own money or take on lending before it agrees a plan. So the owner’s money may go in anyway, later and on HMRC’s terms.”

Is caution costing small firms more?

Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said refusing to borrow out of caution is a false economy.

He added: “Manage working capital before it manages you and cashflow bottlenecks end in late payments to staff and key suppliers. Run a rolling 13-week cashflow forecast, invoice immediately on shorter terms, and negotiate longer supplier terms before invoices fall due.

“Credit cards and overdrafts are usually far costlier than owners realise, compounding interest, penalty fees and a battered credit score eat margins faster than any structured facility. Yet invoice finance, asset refinancing and trade finance get written off as last resorts when they’re routine tools.

“Equally, refusing to borrow out of caution is false economy resulting in broken supply chains, lost trust and departing key staff cost far more than short-term, structured support. And the public sector? Central government, councils and the NHS are responsible for a meaningful 15% slice of late payments to UK SMEs, so chase them as hard as anyone.”

ENDS