UK small business profits rise as late payments bite

UK small business profits grew by 7.4% in the year to the first quarter, the fastest rate since 2022, according to Sage.

Sage's latest SME Performance Pulse, based on anonymised accounting and payroll data from nearly 150,000 small and medium-sized businesses, painted a mixed picture of stronger profitability alongside persistent payment delays.

Real revenues rose by 3.2%, extending growth to a fourth consecutive quarter, while profit growth accelerated from 5.5% in the previous quarter. The figures came as the wider UK economy expanded by 0.6% quarter on quarter in the first three months of the year, according to Office for National Statistics data cited in the report.

But the data also showed a sharp slowdown in spending growth. Small business spending growth fell to 1.6% from 4.8%, suggesting firms are becoming more cautious as costs rise and demand softens.

Nearly half of all SME invoices were overdue (49%), with businesses waiting an average of 27 days after issuing an invoice to receive payment. Those delays appeared to be spreading through the supply chain, with SMEs taking an average of 37.1 days to pay supplier invoices, up from 31.9 days a year earlier.

The findings come as policymakers examine payment practices among larger companies and their smaller suppliers. Data cited in the report estimated that late payments cost the UK economy £11 billion a year.

"The UK's small business community continues to demonstrate extraordinary resilience to adapt and grow," said Derk Bleeker, Chief Commercial Officer at Sage. "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."

Payment pressure

The report linked the rise in overdue invoices to a broader cash-flow squeeze across smaller firms. Longer payment delays can leave businesses with less room to invest or settle their own bills promptly, adding strain even when revenues and profits are still rising.

Emma Jones, Small Business Commissioner, pointed to the effect on confidence and investment.

"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," Jones said. "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."

The report noted that the Small Business Protections (Late Payments) Bill is moving through Parliament. It also referred to planned e-invoicing measures, which can shorten payment times by five to seven days through the direct exchange of invoice data between buyers' and suppliers' financial systems.

Regional split

Performance across the UK remained broad-based, though some regions stood out. The East Midlands led profitability growth at 20.2%, followed by the West Midlands at 16.3% and London at 10.6%.

At the city level, Derby ranked first for two-year revenue growth at 43.6%, the strongest performance of any UK city for a third consecutive quarter, the report said.

Sector diversity also appeared to be a supporting activity. The data pointed to contributions from manufacturing, professional services, technology and finance, rather than growth being concentrated in a single part of the economy.

Liam Daly, Senior Economist at Cebr, said the figures suggested resilience across different parts of the country despite uneven conditions.

"The regional data highlights the diversity of the UK's SME economy," Daly said. "While different regions are benefiting from different sector strengths, the first quarter results showcase broad-based growth despite a challenging economic climate. From manufacturing and professional services to technology and finance, businesses across the country continue to create opportunities, invest and contribute to local economies."

The latest reading suggests that many small businesses are still reporting rising profits and revenues despite rising costs and slower spending. But with invoice delays still affecting almost half of firms, the figures also show how fragile that progress can be when cash takes weeks to arrive.