British small businesses are turning to invoice finance in record numbers as late payments continue to strain working capital, according to industry figures released this week.
The Asset Based Finance Association, which tracks the sector, reported that outstanding invoice finance balances held by UK lenders rose past £26bn in the first half of the year, with the number of client businesses up by more than a fifth on the same period in 2025. Industry research suggests the average SME now waits more than 11 days beyond agreed terms for payment, leaving firms to cover wages, rent and supplier bills while they wait.
Invoice finance lets a business release cash tied up in unpaid invoices, typically within 24 hours of approval, in exchange for a fee. Lenders say demand has been strongest among manufacturers, wholesalers and construction subcontractors, sectors where payment terms of 60 to 90 days remain common.
“We have seen a structural shift,” said Rebecca Lindqvist, head of commercial lending at a Midlands-based finance group. “Ten years ago invoice finance was seen as a last resort. Now it is a standard part of how growing businesses manage cash flow, and the technology has made it faster and cheaper than ever.”
The government’s Fair Payment agenda, which gives the Small Business Commissioner powers to investigate late payers and publish league tables, has put the issue back on the boardroom agenda. Yet campaigners argue enforcement remains slow. “Naming and shaming only works if firms actually change behaviour,” said Daniel Okafor, a partner at a London accountancy firm that advises more than 200 SMEs. “Most of our clients would rather unlock their own cash than wait for a dispute to be resolved.”
Providers expect the trend to continue as interest rates settle and lenders compete on price. Several major banks have launched digital invoice finance products aimed at smaller firms, with approval decisions made in minutes rather than weeks. Industry analysts say the shift marks a lasting change in how British SMEs fund their day-to-day operations, with working capital increasingly treated as a strategic asset rather than an afterthought.