Scotland’s small firms have experienced a significant rise in late payments which threatens to “spiral out of control”, new research reveals.

The Federation of Small Businesses found the number of late payments rose “significantly” in the second quarter (62.5%) compared with the previous three months (57%). Nearly a third of firms (32.29%) said the problem was getting worse.

The rise in late payments, measured by the FSB’s Small Business Index (SBI), came as confidence among small businesses slipped into negative territory in the run-up to the general election.

UK-wide it was down to -10.8 in Q2 and in Scotland it fell to -7. This followed the first positive reading for a year in the first quarter of 2024.

Andrew McRae, FSB Scotland’s policy chair, said: “Late payment has been a scourge on thousands of small businesses for far too long. The latest SBI results show it is a problem which, without decisive action, is spiralling out of control.

All small firms are asking for is fair treatment from bigger companies. And where that doesn’t happen, the government needs to step in to ensure an even playing field.

“Government at every level needs to be doing all it can right now to reinvigorate economic growth. But you won’t get growth if money’s not moving round the economy and late payments are crippling businesses’ cashflow.

“Boards of large companies can be made more accountable for their payment practices. And, specifically in Scotland, while the procurement reform programme emphasises the need for prompt payment in the supply chain for public sector contracts, it’s clear that message needs to be bolder and firmer in order that we can address the problem highlighted by our figures.”

FSB has been campaigning for effective measures to hold big businesses to account over late payment and create a level playing field for small firms. Its General Election Manifesto outlined steps it wants the UK Government to take to tackle the issue, including forcing large corporations to publish details of their late payment record and barring poor payers from public procurement contracts.

it said its report Time is Money: The Case for Late Payment Reform, published last year, showed the problem stifles economic activity and is a critical factor in whether startups survive and succeed.