UK SMEs are dealing with cash flow issues up to 10 times a year – what’s going wrong?

Cash flow has always been part of running a business. But for many UK SMEs, it’s becoming a recurring problem. 

Research from the Chartered Institute of Credit Management (CICM) shows that more than 8 in 10 SMEs (82%) say they have experienced cash flow issues, with the average business reporting problems an average of 7.4 times per year. When it comes to medium-sized businesses, that number is creeping closer to ten.

In other words, for a big portion of UK businesses, cash flow issues rear their head nearly every month.

A problem that won’t go away

Late payments are still the most common reason behind this, as reported by 36% of SMEs. Other factors at play include seasonal swings in revenue at 35% and unexpected changes in trading conditions (27%).

And whilst none of these are particularly new, what’s changed is how often they’re affecting businesses.

Small and medium-sized businesses are the most likely to be affected, with 91% and 90% respectively reporting cash flow issues. Even sole traders, who have much lower overheads, are far from immune, with more than two-thirds (68%) affected.

Quick fixes are fuelling the fire

Despite how often these problems pop up, many SMEs are still dealing with them in the same way they always have.

More than half (55%) are relying on short-term fixes, including cutting costs, taking out loans, or borrowing from friends and family. Longer-term options like invoice finance (11%) or outsourced credit control (5%) in contrast are still relatively underused.

On one level, that makes sense. When cash is tight, companies want quick fixes. But these rarely solve the underlying issue. They may buy time, but they don’t buy stability. In fact, they do quite the opposite. Businesses plug one cash gap, only to find themselves facing another just a few weeks later. 

It’s a vicious cycle that few are able to get out of.

A mismatch between how businesses operate and tools they use for cashflow

For many SMEs, the issue runs deeper than late payments or seasonal dips. It’s a lack of knowledge that leaves them vulnerable. 

Declan Burton-Clark, Founder at Supplier Finance Specialist Plutus Business Finance, believes many SMEs are using financial products that don’t work with how they operate.

“What we see again and again is a mismatch between how a business trades and the tools it’s using to fund that,” he says. “An overdraft might work for a retailer with a steady weekly cash cycle. But it doesn’t work for a business that’s paying suppliers months before it sees any revenue. The tool doesn’t fit the timing of the problem. Most business owners don’t realise this until they’re already in financial difficulty.”

Whilst overdrafts and loans can be a good tool for some SMEs, those with longer payment cycles may find themselves short of cash or stuck paying for an expensive loan that they don’t actually need.

Growth creates pressure

Some of the most regular cash flow problems aren’t linked to failure, they’re linked to growth.

Take a business importing items. A deposit of around 30% is paid, with the full balance due months later when the stock is ready to ship. By the time the items actually arrive and are ready to sell 4-5 months later, the business may have cash locked up for over half a year without seeing any return. That’s a six-month cash gap on a single trade cycle, and most businesses are running the next order before the first one has been paid for.

Even landing a big order can create problems. Whilst it might sound good in theory, the business may have to shell out money to buy 3x-4x their normal stock volume in one go. 

To fulfil it, they may also need to invest in staff and logistics, all before a penny comes in. Banks are unlikely to fund businesses with no history of orders this large, so for many companies, growth is an opportunity that they simply can’t capitalise on.

Many businesses are simply reacting too late

Timing is another part of the problem.

Many businesses only look for cashflow solutions when the situation becomes urgent, rather than acting early. According to Plutus, this puts them on the back foot from the start.

“By the time most businesses start looking at their options, they’re already under pressure,” says Declan. “That limits what’s available to them and often makes it more expensive. The businesses that handle this best are the ones that plan ahead, not the ones reacting in the moment.”

A shift in mindset is needed

Many SMEs are still approaching cash flow in a way that doesn’t reflect how they now operate. For Declan, the starting point is simple: rethink the question.

“Most business owners ask, ‘how much can I borrow?’ The better question is whether the funding actually matches how their business runs. If your stock turns in 90 days, your financing should too.

“The truth is that cash flow issues for businesses aren’t going away. If anything, they are getting worse. Uncertainty around tax policies, increased shipping times and the unpredictability of supply chains means businesses have to front-load cash at a time when lenders are tightening their criteria. The reality is that businesses that would have been approved a couple of years ago are finding it harder or slower to get things in place.”

An ongoing problem for businesses

The CICM figures bring to light a key point that many business owners already know: cash flow issues aren’t going away.

But the problem isn’t just about late payments or economic uncertainty. It’s about how businesses plan ahead, and how they understand the tools available to them.

For SMEs that are stuck dealing with cash flow problems up to ten times a year, the challenge isn’t just about getting through the next cycle, it’s about breaking the pattern once and for all.