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Research commissioned by eCapital found that 39% of UK B2B SMEs missed growth opportunities over the past year because of cash-flow pressures. It also found that 42% would invest more in hiring, expansion and equipment if cash flow were no longer a concern.
The findings are based on a survey of 500 financial decision-makers at small and medium-sized businesses that sell goods and services to other businesses on credit terms. One in six said severe cash flow pressure was threatening their company's survival.
Among businesses that experienced cash flow strain, 55% cited late payment as the most common cause. Rising operating costs, including energy, were named by 42%, while 35% pointed to higher wage costs or employer taxes.
The study suggests the issue goes beyond defensive financial management. A third of respondents said they would take on more contracts and customers if cash flow constraints were removed, indicating that working capital shortages are affecting expansion plans as well as day-to-day operations.
Borrowing patterns
Access to finance already plays a major role in how many SMEs manage pressure on working capital. More than four in five businesses surveyed, or 85%, said they had used at least one loan, overdraft or credit facility in the past year.
Overdraft extensions were used by 38% of respondents, while 37% relied on credit cards or informal borrowing. Short-term loans were used by 29%. By contrast, only 14% had a structured working capital solution in place.
The research also points to the commercial trade-offs many businesses are making to secure sales. It found that 93% had accepted a contract with unfavourable payment terms to win business, and 35% said they did so often.
Mark Finn, Chief Revenue Officer at eCapital, said: "SMEs are a major engine of the UK economy. As cash flow pressure mounts due to energy bills, inflation and increased cost of employment, we're seeing too many businesses holding back from hiring and investment. We can also see them turning to unsustainable forms of borrowing, such as credit cards and short-term loans. Both options undermine SMEs' ability to expand, making cash flow management a wider economic growth issue."
Psychological strain
Alongside the financial impact, the survey recorded signs of stress among owners and managers. Almost a third (31%) said managing cash flow causes regular worry, while 12% said it has led to lost sleep.
Dr Clare Mulligan-Foster, BPS Chartered Psychologist and Executive Leadership Coach, analysed the findings for eCapital.
"Financial uncertainty doesn't just affect balance sheets, it changes behaviour. When we are unsure of something, our brain interprets that discomfort as a form of threat. By improving visibility over cash flow and building confidence in future financial resilience, however, businesses are better able to move from reacting to uncertainty to making deliberate, strategic decisions," said Mulligan-Foster.
The report comes against a backdrop of renewed political attention on payment practices, with lawmakers scrutinising late payments as they consider changes through the Commercial Payments Bill. The findings suggest, however, that the problem extends beyond overdue invoices to the broader structure of working capital in sectors with long payment cycles or significant stock requirements.
Finn said: "The Government's proposed payment measures have brought the wider issue of working capital into focus. Late payments are an important part of the problem, but even businesses paid on time can face working capital pressures created by long payment cycles, stock requirements and other operating costs. Managing cash flow is about having access to the right funding, including solutions such as invoice finance that can release cash tied up in unpaid invoices, to mitigate payment cycles and support growth."
The report includes an example from Outdoor Living, a North West garden furniture wholesaler that supplies major UK retailers. The business said demand was strong, but long import times created a working capital gap that limited how much stock it could buy.
According to the company, that constraint held back growth until it adopted invoice finance. Its turnover rose from £1.2 million in 2023 to £2.2 million in 2025.
Chris Dobson, Co-Founder of Outdoor Living, said: "The constraint on this business was never the demand, it was working capital. We always had the ideas and the ambition to grow, but we found ourselves buying what we could afford rather than what we knew we could sell. Invoice finance changed that. We now have the confidence to commit to larger stock programmes, plan further ahead and invest in the business when the opportunity is right, rather than when the cash flow allows."
Finn added: "Action on late payments must be accompanied by greater support to equip SMEs with the knowledge and tools to manage working capital effectively. That means better financial education, clearer guidance on the alternative funding options available and stronger signposting to specialist advice, so businesses can make informed funding decisions before cash flow becomes a barrier to growth."