UK Small Business Profits Hit Four-Year High Despite Payment Delays
Profit growth among UK small and medium-sized firms reached 7.4% in the first quarter of 2026, the strongest pace since 2022, but nearly half of all invoices remain overdue.
UK small business profitability grew by 7.4% in the year to the first quarter of 2026, marking the strongest rate since early 2022, according to data from business software firm Sage. Real revenues rose by 3.2% for a fourth consecutive quarter, while profit growth accelerated from 5.5% in the previous quarter.
The figures, drawn from anonymised accounting and payroll data covering nearly 150,000 UK small and medium-sized businesses, showed regional variation. The East Midlands led profitability growth at 20.2%, followed by the West Midlands at 16.3% and London at 10.6%. Derby topped the city rankings for two-year revenue growth at 43.6%, holding first place for a third consecutive quarter.
The cash-flow squeeze
Despite stronger profits, nearly half of all SME invoices (49%) were overdue, with businesses waiting an average of 27 days after issuing an invoice before payment arrived. SMEs are also taking longer to pay their own suppliers, averaging 37.1 days compared with 31.9 days a year earlier. Small business spending growth slowed sharply to 1.6%, down from 4.8% in the previous quarter, suggesting firms are becoming more cautious as costs rise.
What it means for you
If you run a business in the UK or are considering starting one, these numbers show resilience but also real pressure. Profits are improving, but late payments can still leave you short of working capital even when sales look strong. Whether you're invoicing clients or managing supplier relationships, building payment terms into contracts and chasing overdue invoices promptly will be essential to keeping cash flowing in 2026.
Sources
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