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This is how SMEs can effectively combat late payment problems

The Spring Statement 2019 included new policy to tackle late payments and the Federation of Small Businesses (FSB) has launched a new campaign to end the practice. But will they be as effective as invoice finance?

The Chancellor’s announcement that large companies will require a non-executive director-led audit committee to report on payment practices when dealing with small businesses is positive news. It increases the onus on these firms to better monitor their small business payment practices. However, small business owners are unlikely to be dancing behind their desks; initiatives have come and gone on a regular basis, which points to the need for more concrete, forceful measures.

Such measures form the basis of the FSB’s new Fair Pay, Fair Play campaign. Launched before the Spring Statement 2019, it calls for the strengthening of payment enforcement, with fines for firms that fail to provide Duty to Report information and investigations by the small business commissioner into the payment practices of large companies; and for the adoption of project bank accounts for major public procurement projects, with parliamentary oversight to ensure accountability.

Interestingly, the Federation’s new campaign also called for the assignation of non-executive directors responsible for preventing late payment, which was delivered by the Chancellor. This is encouraging but it remains to be seen if the government will further develop late policy along the lines prescribed by the FSB.

And this kind of stronger-arm policy evolution is likely to be strongly supported by small business owners. A new study from MarketInvoice is a reminder of the severity of the late payment problem. According to the creative industry focused survey, almost 50% of creative industries were paid late in 2018. Furthermore, the study found that the industry was left out of pocket to the tune of £1.1 billion at any given time because of late payment, based on a typical invoice worth £38,137 being settled 13 days after the payment date.

Across all industries, according to payment experts Bacs, the bill for recovering overdue payment is now at an average of £9,000 per business, with small businesses facing a bill of £6.7 billion just to collect money that they are owed.

So, what is the most effective step small businesses can take?

Step forward invoice finance.

Invoice is a proven means of mitigating the impact of the late payment culture. By using invoice finance, small businesses can be advanced as much as 90% of an approved invoice by their finance provider, with the balance settled by the customer. As a result, businesses are ensured working capital.

New data from Optimum Finance demonstrates the impact that using invoice finance can have. According to the figures, new clients using invoice finance have experienced a sharp reduction in debtor days in the last six months, with some seeing the time taken to pay invoices decline by almost two thirds. The result is an easing of pressure on cash flow and greater flexibility to target new growth and invest in new staff, training, equipment and other resources.

While Brexit casts a significant shadow over the measures announced in the Spring Statement 2019, it is encouraging to see more action against late payment. However, the proof will be in the pudding. In the meantime, invoice finance offers small businesses a tangible means of tackling the practice.

To find out more about A&T Business Associates services, contact Steve Bowles on 01903 602211 or steve.bowles@atbusinessassociates.co.uk.

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