A little over a year after the demise of Carillion, the SME sector is again bracing itself following the failure of another major government contractor. The collapse of Interserve underlines the need for better SME payment protection. Invoice finance should be part of the planning.

Aside from asking some serious questions about the handling of public sector contractors, the failure of Interserve, which has been placed into administration, will have numerous SMEs sweating over contracts and unpaid bills.

While Interserve’s activities have been moved into a lender-controlled group that will continue its work, how the “new” company moves forward and what this means for the companies in the supply chain remains to be seen. Interserve had a broad portfolio, including hospital cleaning, school meals provision, overseas military base maintenance and probation service management.

Given the poor payment practices that the collapse of Carillion exposed and the impact it had on SMEs linked to the contractor, the sector is no doubt stealing itself for more bad news. It will be interesting to see what kind of payment protection supply chain companies have in place following Carillion’s demise, especially given the relatively short space of time between the two failures.

Notably, SME payment protection is back in the news following the Spring Statement 2019, in which the Chancellor announced new measures to combat late payment, and many will hope that the failure of Interserve adds greater urgency to these efforts.

Late payment has long been a thorn in the side of small businesses and while pressure is being ramped up on those guilty of such practices, both in terms of new legislation and initiatives announced in the last 12 months, there is little to suggest that a solution is close. Indeed, given the repeated failure to address the issue, even though the collapse of Interserve is a chance to accelerate change, there is likely to be little confidence in meaningful development being achieved.

This is why invoice finance has such an important role to play in helping SMEs to better protect themselves against poor payment practices. When a small business uses invoice finance, it can get as much as 90% of an approved invoice up front. As a result, the alternative finance facilities offer significant protection against circumstances such late payment and the collapse of key customers.

It is notable that the failure of Interserve is the second such case involving a major government contractor in little more than a year. While the collapse casts doubt over government practices, at the same time it underlines the need for SMEs to exercise self-protection. Invoice finance should be part of this financial planning.

To find out more about A&T Business Associates services, contact Tony Hedger on 01903 602211 or tony.hedger@atbusinessassociates.co.uk.