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Is this the answer to the impossible late payment problem?

Late payment is a problem that is seemingly impossible to solve. Its crippling impact on small businesses is regularly highlighted, but to little effect. However, alternative finance can help protect SMEs.

New research shows that almost half of the invoices issued by micro-businesses in the UK in 2017 weren’t paid on time. The study from FreeAgent, a cloud accounting software company, also revealed that a quarter of micro-businesses had had to wait between three and six months to get paid, and that 10% had received no payment at all.

Elsewhere, new data from Funding Options, an online business finance supermarket, shows that payment delays for subcontractors in the construction industry are getting longer. The average wait has increased to 42 days compared with 40 days in 2013. Meanwhile, local authorities have been publically criticised by trade bodies for failing to monitor the 30-day payment rule for construction industry subcontractors.

It is clear that late payment is a problem that remains unsolvable. And this is very bad news for small businesses. Late payment costs the sector billions of pounds a year, impedes development and growth, and pushes businesses to the wall.

Efforts by the government and industry have yet to yield any meaningful results. The Prompt Payment Code, long touted as a solution, has proved an unmitigated failure. Carillion was a signatory to the code yet its collapse revealed a scandalous approach to paying contractors and other SMEs.

More encouragingly, the need to tackle late payment was mentioned in the last Budget and a Small Business Commissioner has been appointed specifically to address the issue. However, comments by the Small Business Commissioner, in which he states that not even he would use his own service to chase unpaid invoices when he was an SME owner, suggests that the government aren’t particularly close to an effective solution.

Is legislating against late payment the answer? Possibly, and the idea of introducing legislation to cap the payment period in the construction industry is gaining traction. However, it’s hard to be too optimistic given the government’s track record in the area.

So, what can small business owners do to get paid on time? Alternative finance and, in particular, invoice finance offer a means of protection against late payment. One of the reasons that small business owners are reluctant to involve government and other formal services is the fear of jeopardising key business relationships. Invoice finance is a way to help ensure payment without endangering contracts.

More and more small businesses are using invoice finance and other alternative finance services, such as asset finance, peer-to-peer lending and crowdfunding. These facilities are offering SMEs an alternative means of accessing capital to safeguard cashflow and invest in growth. This is how a Sussex SME used peer-to-peer lending, through a commercial finance broker that specialises in alternative finance, to raise the money to buy new equipment.

Late payment remains a massive drain on the small business sector and, despite the repeated rhetoric and pledges to tackle the issue, a universal solution seems as far away as ever. That’s why it’s important that small business owners are aware of the benefits of invoice finance.

Want to know more about what A&T Business Associates can do for your business? Contact Tony on 01903 602211 or tony.hedger@atbusinessassociates.co.uk.

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