Small businesses are spending an increasing amount of money on legal action in pursuit of late payments. This outlay is pushing already under-pressure firms to breaking point. But there is way to cut these costs.

According to new research from Hitachi Capital, two in five small business owners are taking legal action against clients that haven’t settled invoices on time. The number of small businesses taking these steps has risen by over 20% since 2018. Notably, at the same time, the number of these firms unable to pay suppliers because of late paying customers has jumped by 14%, while the study also found that 20% of business owners are not paying themselves as a result of unpaid invoices.

A separate study from the Association of Independent Professionals and the Self-Employed has revealed that on average, freelancers spend 20 days a year dealing with late-paying clients, while the Federation of Small Businesses estimates that late payment forces as many as 50,000 firms to close every year.

This disheartening news comes at a critical time for the fight against late payment, a practice that costs the economy billions of pounds every year. Small Business Commissioner Paul Uppal has done much to advance the battle against the practice, notably recovering million in overdue payments for small businesses, and was due to be given more powers to tackle late payment. However, his resignation has checked this momentum and puts a question mark against the strategy of the office going forward.

Interestingly, the government has announced that the launch of a new £2 million fund to boost productivity and tackle late payment through the use of accountancy and HR management technology. This is positive news but it is clear that the small business sector requires more direct, more tangible action from the government and regulators.

So, what can small business owners do to manage the costs of late payment and reduce the amount they spend on pursuing late payers through the courts?

Invoice finance can help.

In the wake of prolonged caution from traditional lenders, a position that Brexit is helping to entrench, alternative finance is providing small businesses with access to capital for vital investment. The most widely used alternative finance facility is invoice finance, which can offer some protection against late payment.

This easily accessible, affordable and flexible service allows firms to secure capital and safeguard cashflow, without jeopardising key business relationships. As much as 90% of an approved invoice can be advanced by a finance provider, with the remainder settled by the customer.

Much has been done to strengthen the fight against late payment in the last couple of years, but despite these efforts, the practice remains a particularly painful thorn in the side of small businesses. Invoice finance isn’t a cure but it can help better protect small businesses against the impact that late payment can have on cashflow and company health.

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