The Mail on Sunday newspaper reported that the financial crisis seems to have hit undertakers as well as they are refusing to conduct funerals unless they receive advance payments.
With undertakers unable to extend credit, some poor families are having to wait more than two months before receiving government help paying for funerals, the weekly tabloid said.
Bereaved families can apply to the Department for Work and Pensions if they can prove they are receiving state benefit payments and cannot afford to foot the bill.
Around 27,000 people per year receive cash for funerals from the DWP's Social Fund, totalling 46 million pounds (78 million dollars, 58 million euros).
John Weir, of the National Society of Allied and Independent Funeral Directors, said his colleagues were in an "impossible" position because they could not afford to extend credit.
"There are hundreds of people in this situation," he said.
"Funeral directors are having to take a more commercial approach in these troubled times.
He said there had been an increase in the time payments took to go through.
"The normal gap between death and burial is about 10 days, but the government's stance means it can be more like five weeks and sometimes longer," said Weir.
"In these economic conditions, many directors now look to get payment in advance."
A lawmaker from the main opposition Conservatives, who has been contacted by grieving constituents, plans to submit a question in parliament on the issue.
"Hard-working funeral directors who are already feeling the pinch of the credit crunch are, in contrast to usual practice, having to refuse to undertake funerals without first receiving payment," explained MP Daniel Kawczynski.
A funeral director in his Shrewsbury constituency in western England is still waiting to bury a 77-year-old man who died on August 13. The bereaved family's application for financial help was only cleared on Thursday. The funeral will finally take place on Friday.
In its editorial, The Mail on Sunday urged the government to speed up its procedures.
"This distressing aspect of the credit crunch shows that the hurricanes blowing down Wall Street have the power to affect us all in unexpected ways," the newspaper wrote.
"The sad story of the unburied dead should alert us to the much worse things that lie ahead if we do not pull out of this dive."
A DWP spokeswoman said: "It's obviously a difficult time for any family following the death of a relative and that's why we make sure applications are processed as quickly as possible with the majority done in 16 days or less."