Respite from late payment remains elusive for small businesses, with new research highlighting the scale of the problem, the damage it is doing to firms and concerns about what impact it will have in the future.

According to a new survey by GoCardless and the Federation of Small Businesses, a staggering 45% of firms are dealing with more late payment issues than a year ago, with 50% worried that the incidence of late payment will continue to rise over the next 12 months.

These findings are echoed by the results of a study by Purbeck Insurance Services, in which it was revealed that small businesses with 10 or more employees are owed on average between £18,000 and £21,000. The problem is at its most acute for firms with between 100 and 249 employees. Notably, almost two thirds of companies said the practice was affecting their cash flow and their capacity to grow.

Research from Shawbrook reveals how late payment is damaging small businesses. According to the lending bank, almost a third of small business owners have considered taking out loans to cover financial shortfalls caused by late payment, while almost 30% business owners have covered the expenses out of personal funds.

Such practices put small firms and their owners in a precarious position and underline the threat posed by late payment. Maintaining healthy cash flow is critical for a small business, not least for its ability to function properly and to invest in growth, and when this is disrupted, the stress put on firms is significant, with some firms at risk of closure.

How alternative finance can help with managing late payment

The results from the recent surveys are very sobering and underline the continued failure to address a serious issue for small firms. They are also a reminder that when it comes to a solution for late payment, businesses need to be proactive in finding their own ones.

And this is where alternative finance can help.

As small business lending from traditional sources remains subdued in Q3, with firms still experiencing difficulty in accessing finance from high-street banks, 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.

In particular in relation to late payment, 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, the Growth Guarantee Scheme is providing a wide range of finance facilities to smaller firms, including invoice finance, offering further proof that alternative lenders are increasingly filling the small business funding gap.

Small firm finance options for late payment cash flow strain

The government may be implementing reform aimed at tackling late payment, but as recent evidence suggests, the problem remains severe and maybe even increasing.

As such, at a time when many small firms are one major cost increase away from collapse, it is vital these companies are positioned to deal with the impact of late payment, and this includes being aware of alternative finance services, in particular invoice finance.

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