As Chancellor George Osborne goes head to head with the big banks again over reform to the banking system, the small business sector is fighting its own battle to protect essential cash flow. To achieve the growth some have predicted in the second half of the year, SMEs must use all the services available to them.

A key area in which small businesses will have to box clever is generating cash flow. Cash flow is the lifeblood of SMEs and, according to new British bank Aldermore, this supply is being squeezed by late payments from customers that are either struggling to pay bills or exerting their buying power to delay payment and improve their own cash flow.

According to a new survey by Aldermore, SMEs are taking measures to protect their vital flow of cash, including challenging payment terms proposed by their clients, threatening late payment charges and even turning down work because of poor payment conditions.

Another option is invoice discounting and factoring, which is a small business finance service that allows companies to release cash locked in invoices, thereby stimulating crucial cash flow. Cash can be released almost immediately from invoices.

This flexibility will be crucial to SMEs in the short term and you feel that the small businesses that use finance services such as invoice discounting will be the ones that post growth at the end of the year. Asset Based Finance Association figures presented by Aldermore show awareness is rising – the value of outstanding invoice finance extended to businesses by its members rose by 9% to £12.6 billion in 2010 – and this can only be a good thing.

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