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How small firms can fix late payment cash problems

Ending late payment could give the economy a multi-billion pound boost – just what it needs. But what is the fix? And in the meantime, how can small firms manage the impact on cashflow?

Late payment is a problem that just won’t go away for small businesses. Despite the lobbying, the reports on how much it is costing the sector and the pronouncements and promises of organizations responsible for finding a solution, the practice continues to hamstring small firms, affecting the finances and wellbeing of owners and directors.

How late payment is affecting small businesses

Recent studies provide yet further examples of the impact of late payment and the failure to address the issue. According to a new survey from Intuit QuickBooks, on average, SMEs are waiting on a backlog of payments worth around £27,000. Notably, over half of companies questions believe that the situation has worsened recently – which is the worst possible timing.

Figures from the Office of the Small Business Commissioner paint a similar picture, with research showing a third of all payments to small business are late. The average value of these payments is over £6,000. As a result, over a third of small business owners are having to use personal savings to manage cashflow, while just over a quarter admitted to mental health problems directly related to late payment.

And small business owners are right to be concerned. The Centre for Economics and Business Research reported 6,700 business closures in the second quarter of 2023, and estimates the number will rise to 7,000 per quarter next year. This comes at a time when it has been revealed that the Office of the Small Business Commissioner has recovered just £800,000 in late payments since mid-2021.

Fixing late payment and how invoice finance help

While the solution to late payment continues to evade the powers that be, there is a considerable incentive to finding it. The Office of the Small Business Commissioner suggests that if small businesses were paid on time, this would give the economy an annual shot in the arm of around £2.5 billion. Think of the impact that could have.

If the meantime, small businesses are left to fight the battle largely on their own. So, how can they manage the impact of late payment and safeguard cashflow? 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 65% more SMEs experiencing difficulty in accessing finance from high-street banks in August 2023 compared to a year earlier.

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 small firm finance options

Every few months, reports appear on the growing scale of late payment and its worsening impact on the small business sector. While efforts to combat the problems remain undercooked and ineffectual, small firms battle to manage the fallout from the practice. This is why 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 Steve Bowles on 01903 602211 or steve.bowles@atbusinessassociates.co.uk.

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