The government is planning to scrap the ban on small businesses raising funds by borrowing against unpaid invoices. Could this be the beginning of the end of the problem of late payment?

The change in legislation, which will take place early next year, was announced by the Small Business Minister, Anna Soubry. The move comes only a matter of days after it was revealed that SMEs are owed nearly £27 billion in overdue payments. According to the Asset Based Finance Association (ABFA), small businesses with a turnover of less than £1 million face, on average, a wait of 72 days to get paid.

New figures from Tungsten Corporation further underline the damaging effect of late payment on the SME sector. According to the company, a quarter of small businesses in the UK are at risk of insolvency because of unpaid invoices.

The move has received backing from the ABFA and the Federation of Small Businesses, but an end to late payment is far from guaranteed. Larger companies often insist in contracts that smaller firms do not use invoice finance and this practice could increase in the wake of the announcement by the small business ministry.

While the impact of the reform remains to be seen, the step is nevertheless a positive one and suggests that the Small Business Commissioner’s efforts to tackle late payment may have some teeth. The problem is regularly reported and potential solutions periodically heralded. However, despite the considerable rhetoric, the reality is that most initiatives have failed to combat an issue that is a major barrier to small business sector growth.

Invoice finance has long been touted as an answer to the problem of late payment and it would seem that the government has woken up to its potential.

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