Polling more than 10,000 businesses across Europe, credit management group Intrum Justitia found 55 percent of companies, the highest level in the history of its annual European Payment Index, said unpaid debt is hurting their business.
Nearly three out of four companies surveyed also said they had not yet felt any impact from a recovery in the euro zone with small and medium sized enterprises (SMEs) at most risk, Intrum Justitia said.
Read MoreEuro zone business activity at three-year high
"Late payments accelerate a negative chain reaction for business where lack of liquidity forces downward measures in a degree rarely acknowledged. Hardest hit are small and medium enterprises, that is those firms that account for the main part of growth," said Intrum Justitia sales director of U.K. and Ireland, Gerry Barrett.
There has been a rush of good news out of the euro zone recently: Markit's purchasing managers index showed business activity hit a three-year high, the borrowing costs of the bailed out and shaky "peripheral countries fell to record lows and Standard & Poor's upgraded its credit rating outlook for bailed-out Portugal.
Read MoreEurope's crisis notover yet: IMF's Lagarde
However. European SMEs, even in economic powerhouse Germany say they are not experiencing a boost in business sentiment. Over a third of German companies said that late payments have a strong impact on their need to lay-off staff, Intrum Justitia found.
A tiny percentage of firms however have seen business pick-up: In Iceland, one per cent, and Sweden, two per cent, of SME managers say they have felt a positive impact of a recovery.
"The future facing Europe's 26.2 million unemployed looks bleak. Some 40 percent of respondents have no plans to hire new employees due to the severity of late payment. And 26 percent said late payment had obliged them to dismiss employees.
"Against the above background, many in Europe's business community must be wondering when they will ever see a normal business cycle again?" said CEO of Intrum Justitia, Lars Wollung.
Follow us on Twitter: