Late payment has long been a thorn in the side of small businesses, but as firms struggle to manage the impact of Covid-19, the pain it is inflicting is more acute than ever. But is a solution in sight?

Late payment to small businesses has been largely pushed from the news by Covid-19 over the last year, but a new development has put it back in the spotlight: the government has announced an overhaul of the Prompt Payment Code.

What does Prompt Payment code reform mean for SMEs?

New measures under the revised Code include a significant cut in the period for paying small firms; instead of a 60-day limit, signatories will have to pay these businesses within 30 days. In addition, business owners, finance directors and CEOs will have to take personal responsibility for payment and investigate breaches of terms.

The reworking of the Code comes as the government attempts to bolster the power of the Small Business Commissioner, who has spearheaded efforts to tackle the problem of late payment in the past. There has also been talk of making the payment orders detailed in the Code legally binding and introducing fines for breaches.

The reform and the language behind it are encouraging for small business owners, but they won’t be hurrying to hang the bunting. The Code has long been criticised for its ineffectiveness, with many signatories openly breaching the payment terms. While there were encouraging noises coming from the office of the Small Business Commissioner in relation to the Code before Covid-19, caution remains the watchword with regard to this initiative.

The impact of late payment and how it can be managed

Regardless of the impact of the reform of the Code, the need to effectively tackle late payment remains acute. According to the Federation of Small Businesses, it costs the economy millions every year and drives around 50,000 companies out of business on an annual basis.

So, how can small business owners manage the costs of late payment?

Alternative finance can help.

Late payment costs and how alternative finance can help

In the wake of prolonged caution from traditional lenders, which is an issue that has returned during the coronavirus pandemic, alternative finance facilities such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses, both for maintaining cashflow and for essential investment.

These facilities, which offer a more easily accessible and personalised approach to lending, are helping small businesses survive and target regrowth.

Notably, alternative lending is playing a prominent role in the government emergency support schemes, in particular the Coronavirus Business Interruption Loan Scheme, which is connecting firms and the self-employed with loan, invoice finance and asset finance facilities. This profile is helping cement the reputation of alternative finance in the business sector.

Late payment and SME finance options

Late payment is the last thing that small businesses need to deal with at the moment, but it is nevertheless a painful reality for many firms. To manage the costs related to this practice and others, it is important that owners are aware of all the available funding options, from emergency support schemes to the services of alternative lenders.

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