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The scourge of late payment – how small firms can protect cash flow

Late payment. One step forward, two steps back. Sound familiar? That’s because it is. After yet another round of serious-sounding statements, new figures show that the practice is continuing to surge. What can small firms do to protect cash flow?

For small businesses, late payment is the scourge that never ends – the sector’s own private hell. These firms are intrinsic to the national economy – accounting for over 60% of employment – yet when it comes to getting rid of a practice that would go a long way to helping them get back on their feet after years of austerity, nothing meaningful can be done.

Promises are made, reform is drawn up, pledges are announced – all on a regular basis – but the problem remains and, in some cases, is getting worse.

How much is small firm late payment costing the economy?

The bottom line is late payment is causing a multi-billion-pound-sized hole in the economy. According to a new survey from Capital on Tap, small firms are currently missing out on £7.4 billion in unpaid invoices. At the same time, a new study from NatWest has revealed that the practice has increased in the last six months for over half of businesses.

The average cost of the practice per small business varies according to source. The Office of the Small Business Commissioner puts it at £6,142, while others claim that it is as high as £20,000. Whatever the level, it’s a lot.

On the ground, late payment of invoices means cash flow problems and the consequences of this are businesses struggling to pay bills, including those of their own suppliers, and an inability to invest in growth. And what happens when firms are caught up in this cycle? Many go bust.

Managing late payment and how invoice finance can help

The frustration of the small business sector at the failure to adequately address the issue of late payment is clear, but with little indication of any change in conditions, what can they do? Invoice finance is one solution.

Services such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses in the current funding climate (with 65% more SMEs experiencing difficulty in accessing finance from high-street banks). These alternative finance facilities, which offer a more easily accessible, affordable 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 remainder settled by the client.

This profile has helped cement the reputation of alternative finance in the business sector. According to the British Business Bank, it is alternative lenders that are increasing filling the small business funding gap. At the same time, a 2024 study shows that more and more SMEs are turning to alternative lenders to access larger-scale finance packages.

Small firm finance options for surviving late payment

Late payment is an ill wind that never stops blowing for small businesses, but they have to find a solution to the problem. And given the repeated failure of past initiatives, schemes and reform, it is clear that firms have to take charge of matters themselves. This is why it is important that businesses are aware of all the options available to them for managing the impact of this practice. This includes 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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