The late payment of invoices remains a major barrier to SME sector growth. The government is seemingly getting tough on the issue, which is encouraging, but are small business owners overlooking a key tool in the fight against late payment?

The scale of poor payment practices needs little restating. New research from YouGov and Hitachi Capital Business Finance claims that three in five small businesses are dealing with late payment issues. The survey found that the smallest businesses are most at risk of serious non-payment; these companies are the most likely to have an invoice paid more than a month late, and most likely to have bad debt risks from non-payment.

A separate study by accountancy software firm FreeAgent paints a similar picture. The data show that just 52% of invoices submitted by micro-firms in 2017 were paid on time or shortly after the deadline. The total cost of late payment to small businesses is put at a staggering £2.5 billion.

Despite the frightening nature of these kinds of reports, which are published regularly, they usually stir little in the way of a meaningful response from the government or big business. However, the landscape may be changing because the government is proposing to strengthen the Prompt Payment Code.

The move has been given a cautious welcome by the small business sector. A new tough and transparent compliance regime is being promised, with new rules potentially including an obligation for company boards to give one non-executive director specific responsibilities for prompt payment.

However, small businesses have every reason for being sceptical. The initiative has to date been a major failure. A case in point is Carillion – despite being a signatory to the Code, the collapsed facility management company was allowed to stipulate payment terms of 120 days. Following the failure of the company, a total of 780 construction firms fell into insolvency in Q1 2018, an increase of 20% over the previous quarter.

It remains to be seen whether the government can deliver a stronger Code. This uncertainty underlines the need for small business owners to cast their nets wide when searching for protection against late payment. One tool that they may be overlooking is invoice finance.

This accessible and affordable alternative finance facility allows small business owners more control over payment terms without risking important business relationships. And should the government’s new draft legislation aimed at making it easier for businesses to access invoice finance become law, this non-bank finance service will become an even more powerful weapon for SMEs.

The performance of small businesses has rarely been so important to the UK economy and for this reason, it is vital that the issue of late payment is properly tackled once and for all. The latest efforts from the government are encouraging, but small business owners need to use all the tools at their disposal, including invoice finance.

Want to know more about what A&T Business Associates can do for your business? Contact Tony on 01903 602211 or tony.hedger@atbusinessassociates.co.uk.