Is this the end of small business late payment woes? The latest proposed reforms appear to the toughest yet, but scepticism remains. What are the strict new measures and what other solutions are there?

The government has finally put its reform plan for tackling late payment on the table, and it’s not before time. Despite numerous previous so-called crackdowns under multiple governments, the practice continues to do great harm to the small business sector, with the ongoing market malaise only magnifying its impact.

According to a new report, late payment is costing the economy a staggering £11 billion per year, with an estimated 38 firms per day having to close their doors because of the practice. A study from FreeAgent underlines the scope of the problem, with the research showing that almost two thirds of invoices sent by small businesses were paid late in the last year.

The new legislation is aimed at bringing such behaviour to a halt. The government is planning to introduce maximum payment terms of 60 days (possibly reduced to 45 days by 2030), a strict invoice dispute deadline of 30 days, mandatory statutory interest charges on late invoices and public reporting on late payment, as well as to beef up the powers of the Small Business Commissioner.

How alternative finance can help with late payment management

The prospect of tougher laws on late payment is something that small business owners will be pleased about, but they’re unlikely to get too excited – the government track record of turning promises into reality is poor to say the least.

As such, talk of such reform is always a reminder that firms need to be proactive when it comes to finding solutions to late payment. And this is where alternative finance can help.

As small business lending from traditional sources remains subdued in Q4, 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 businesses 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 increasing filling the small business funding gap.

Small firm finance options for managing late payment cash flow impact

Is this a new dawn in the battle against late payment? Only time will tell. The new tough measures make for good headlines, but, as ever, much depends on the political will to implement and enforce them. And this is no small step.

As such, at a time when many small businesses continue to be one major cost increase away from closure, it is essential that these firms position themselves well to manage the impact of late payment. This includes being aware of the role that invoice finance can play in dealing with the practice.

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