Late payment is a perennial problem for small businesses, but the sector is feeling the impact of this practice more acutely than ever in 2023. At a time of great stress, how can these firms protect their cashflow and ensure their survival?

How the late payment landscape looks now

Despite various efforts to tackle the problem of late payment, it continues to plague small businesses, whose capital resources and profit margins are under extreme pressure thanks to serious market headwinds, not least rising interest rates and falling spending power.

According to new research from FreeAgent, between June 2022 and July 2023, almost half of invoices sent by SMEs were paid late. Another new study, from Purbeck Personal Guarantee Insurance, paints a similar picture – results show that a whopping 81% of business directors are affected by late payment.

Recent messaging from the Federation of Small Businesses has focused on urging the government to take stronger action against large corporations guilty of late payment – with the Prompt Payment Code continuing to prove an ineffective tool. However, it is not just a private sector problem – the Mayor of London recently apologised for late payments made by City Hall to small firms.

Late payment and how invoice finance help

It is clear that despite much talk about tackling the issue of late payment, the scale of the practice remains unchanged, and this is a serious problem for small businesses already battling to survive amid extremely challenging market conditions.

While there is ongoing discussion about further legal reform and the introduction of stronger alternative dispute resolution tools, businesses need a more immediate solution. And this is where invoice finance can help.

Services such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses in a funding climate characterised by prolonged caution from traditional lenders. Indeed, the issue has returned amid highly challenging post-Covid-19 market conditions, with bank loans to SMEs falling by £14 billion in the year to March 2023.

These facilities, which offer a more easily accessible and personalised approach to lending, are helping small businesses survive and target recovery, stability and growth. In particular, invoice finance is allowing firms to secure capital without putting key business relationships at risk. As much as 90% of an approved invoice can be advanced by a finance provider, with the remainder settled by the client.

Notably, alternative lending played a prominent role in the government’s headline emergency support schemes. This profile has helped cement the reputation of invoice finance and other facilities in the business sector, with recent studies showing that invoice finance is the highest ranked alternative finance facility, with its role in supporting cashflow key, and that more than 50% of small businesses are looking to use finance to achieve growth in 2023.

Managing late payment and SME finance options

Late payment has long been a pull on small firms but in the current climate, it poses a much greater threat, including in terms of dragging businesses under. This is why, in order to safeguard cashflow, owners and directors need to be aware of all the finance options available to them, including invoice finance.

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