Adfin | Bridging the £65 billion SME credit gap: how small businesses can take control of cash flow

A recent report from Allica Bank, Rebooting SME Finance to Unlock Growth, revealed a worrying figure: there’s now a £65 billion gap in credit available to UK SMEs. It’s a stark reminder that many small and medium-sized businesses are struggling to access the finance they need to invest, grow, and manage day-to-day cash flow.

The findings show a long-term trend that’s left small businesses short of support. According to Allica, overdrafts once made up 30% of SME finance in the 1990s but now account for just 5%, while loan rejection rates have soared to 40%. Even more striking, only one in four SMEs now applies for external finance at all — down from around two-thirds a few decades ago.

As the report notes, “The UK has drifted toward property, not productivity.” Lending has shifted towards real estate, leaving productive business investment underfunded.

But while the funding system clearly needs reform, small businesses don’t have to wait for policy change. There’s another side to the story — one that’s entirely within their control.

Why borrowing isn’t the only answer

The SME credit gap highlights a structural challenge, but the day-to-day cash flow pain often comes from somewhere else: unpaid invoices, weak credit terms, and inconsistent follow-up.

For many businesses, the biggest untapped source of working capital isn’t a new loan — it’s the money they’re already owed.

Research from Sage (May 2025) found that tackling late payments could unlock £112 billion in additional cash flow for UK small businesses — almost double the size of the current SME credit gap (Sage, 2025). That means the potential solution is sitting inside SMBs’ own ledgers.

That’s why better credit control has become a survival skill. By tightening processes and automating payments and reconciliation, SMBs can reduce dependency on lenders and build resilience from within.

How small businesses can take control

Here are practical steps to help bridge your own version of the credit gap.

1. Review your receivables process
Start with visibility. How long do invoices really take to get paid? Which clients regularly miss deadlines? Map your average days outstanding and total overdue value — you’ll often find your biggest “loan” is to your own customers.

2. Set and enforce clear credit terms
Consistent credit policies protect cash flow and relationships. Be explicit about payment deadlines, interest on late payments, and escalation processes. Most late payers respond faster when expectations are clear and consistent.

3. Automate reminders and collections
Manual chasing is slow and inconsistent. Automated reminders, retries, and escalation rules keep things moving without eating into your team’s time. Adfin’s Autopilot AI, for example, automates reminders and fallback payments so invoices don’t slip through the cracks.

4. Improve reconciliation and visibility
It’s easy for payments to go missing or unallocated. Automated reconciliation ensures every payment is matched instantly, giving you accurate, real-time insight into who has and hasn’t paid.

5. Use data to manage risk
Segment customers based on payment history and financial behaviour. Reliable clients can have more flexible terms; new or high-risk clients may need tighter limits. Real-time credit visibility helps you act before a late payment turns into a bad debt.

Smarter partnerships for better cash flow

Technology can’t solve the £65 billion gap alone, but it can make small businesses far less exposed to it. Platforms like Adfin help firms strengthen the fundamentals — predictable cash flow, accurate reconciliation, and faster payments — while partners like Allica focus on expanding access to responsible lending.

Together, this creates a more balanced ecosystem: one where small businesses can borrow with confidence when they need to, but also collect efficiently and predictably when they’re owed money.

That’s how the UK can start to close the gap — not just by increasing credit supply, but by helping businesses take back control of their own liquidity.

The takeaway

The credit gap might be measured in billions, but its impact is felt in everyday business decisions — when to invest, hire, or even pay suppliers. While government and lenders have a role to play, small businesses aren’t powerless.

By improving credit control, embracing automation, and partnering with providers who put cash flow first, SMBs can create their own bridge across the gap.

Because in 2025, the smartest businesses will be the ones that get paid faster.

Bridging the £65 billion SME credit gap: how small businesses can take control of cash flow

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