As the Barclays banking scandal rumbles on, new figures have shown that late payment continues to weigh heavy on small businesses. The failure to address this issue is attracting more attention and underlining the growing role of alternative SME finance, such as invoice discounting and factoring.
New data from the Royal Bank of Scotland (RBS) has highlighted the severity of late payment problems for small business, with its recent survey finding that SMEs are spending on average 130 hours a year chasing invoice payments. In addition, it has shown that small businesses are being paid on average 30 days after the agreed payment deadline.
This news comes after a report from Lloyds TSB earlier in the year that found that late payments were a leading cause of financial concern among over three quarters of the small businesses it had interviewed. RBS has stated before that the loss in working days caused by chasing invoices is an estimated £4 billion. If further evidence was needed of the scale of problem, new figures from the payment processing company Bacs has revealed that small and medium businesses are owed £35 billion in unpaid bills.
So, what is the solution for small businesses? News that groups including the Federation of Small Businesses and the Forum of Private Business are lobbying 75 of the FTSE 100 members to sign up to the Prompt Payment Code is encouraging but, even if this was successful, it would only be a start. Alternative SME finance products, such as invoice finance, represent another option for small businesses.
These SME credit facilities encourage prompt payment of invoices, and crucially, help to maintain cash flow, which is put under threat by late payment. They also free up time spent chasing invoices, which can be used more constructively on business development, marketing and improving business relationships.
Invoice finance and asset finance are increasingly being integrated into SME finance strategies alongside more traditional small business lending products and the ongoing issues surrounding late payment and the impact on cash flow is one reason why we’re witnessing this shift in the SME finance landscape.
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