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Invoice finance is the answer to persistent problem of late payments

As pressure grows on the government to ease the burden on SMEs ahead of the 2012 Budget, the issue of late payments to small businesses has hit the headlines again, as has the role that invoice finance can play in solving this problem.

Calls from the British Chambers of Commerce and the Office of Tax Simplification to reduce small business regulation, in particular in core areas such as employment and tax, have almost overshadowed the findings from research into SME finance by Lloyds TSB. The bank’s biannual Business in Britain report found that late payments were the cause of financial worry among 76% of companies surveyed.

The report’s findings are eye opening but the problem is not a new one when it comes to small business finance. A similar survey conducted earlier in the year by the Royal Bank of Scotland found that 10% of SMEs in the South East are spending more than a quarter of their time chasing outstanding payments. The loss in working days caused by chasing invoices is an estimated £4 billion.

Services such as invoice discounting and factoring represent a means of combating the problem of late payments for SMEs: Lloyds TSB has said in its recent report that it expects to see invoice finance rise in popularity in 2012 as small businesses look to ease financial strains.

The benefit of products such as invoice discounting and factoring is that the lender generally makes sure that the outstanding invoice is settled within the allotted payment period. Hence, the problem of late payment is much reduced if not entirely removed, helping improve cash flow and relationships with customers and suppliers.

Lobbying for better conditions for small businesses and improved SME lending terms is likely to grow louder in the run-up to the 2012 Budget and the announcement of the details of the Chancellor’s national SME loan guarantee scheme. Whether there will be anything specific on alternative funding and invoice finance remains to be seen.

To find out more about A&T Business Associates services, contact us on 01903 602211 or info@atbusinessassociates.co.uk.

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