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Should the traffic light warning system for SME late payers get the green light?

A new year and a new solution for small business late payment. The small business commissioner’s traffic light warning system has hit the headlines, but will it work?

The need to effectively combat the practice of late payment couldn’t be more urgent. Small businesses are facing serious markets headwinds, with the continued chaos surrounding Brexit only making matters worse. Late payment costs small firms millions of pounds and puts thousands out of business every year. Now more than ever, these companies could do without the problems it brings.

So, what should small business owners make of the proposal from Paul Uppal, the small business commissioner, of a traffic light warning system that identifies the worst late payment offenders?

The idea of identifying companies with unacceptable payment practices, or that fail to submit data on their payment practices, is certainly breaking new ground of sorts. Past initiatives have stopped short of naming and shaming offenders, but it seems Uppal believes that the problem has grown so large that discretion should no longer be applied. One only has to recall the collapse of Carillion, a year ago, and the obscene late payment practices that it revealed, and its impact on a raft of sub-contractors, to understand why he might think that it’s time to get tougher.

On the face of it, it’s a proposal that should be widely supported in the small business sector, but business owners will no doubt want to scrutinise the operating framework behind the system and the policing that will ultimately power it. The wider business community has attempted to tackle the problem of late payment before, in the shape of the Prompt Payment Code. However, the scheme has proved a failure, thanks largely to a lack of engagement with the Code, and damningly, in some cases a wilful disregard for it, even from those who signed up to it (see Carillion).

Small business owners will surely keep a close eye on the progress of Uppal’s proposal. In the meantime, there are other ways that companies can protect themselves against late payment practices, including the use of invoice finance.

In the wake of prolonged caution from traditional lenders, alternative finance is providing small business owners with an alternative means of accessing capital for essential investment, whether in cash flow, new resources or other types of expansion. This is how a Sussex small business used peer-to-peer lending, through a commercial finance broker that specialises in alternative finance, to raise the money to buy new equipment.

Invoice finance is driving the growth in non-bank lending and this alternative finance facility offers protection against late payment without threatening key business relationships. It is a string that small business owners can add to their bows that will help them manage late payers and the problems they cause.

This year is barely a few weeks old and already it is shaping up to be a uniquely challenging one for small business owners. An effective and reliable solution to late payment practices would be as welcome as it is overdue. Part of this solution is invoice finance.

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

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