Pandemic late payments are a threat to the recovery of the small business sector. As smaller firms target new growth, their momentum is being checked by unpaid invoices totalling millions of pounds. The question is, what is the solution to this age-old problem?

Late payment is a long-standing issue for small businesses, but as firms battle to survive the effects of Covid-19, the impact is being more keenly felt than ever. According to data from the Federation of Small Businesses (FSB), 62% of SMEs are experiencing a rise in the incidence of late payment or frozen payments as a result of the pandemic.

Another study, focusing on the insurance, pensions, charity and voluntary sectors, paints a similar picture. This research shows that a quarter of small firms are facing major cashflow problems, with late payments a leading cause. It also highlights the particular vulnerability of SMEs to extended payment terms issued by large corporations.

As for the price that SMEs are paying for late payment practices, the cost was put at over £23.4 billion in 2020, and it seems unlikely that the situation has have improved since then. The FSB estimates that 50,000 small businesses close every year due to late payments.

What is the solution to late payment for small businesses?

So, what is the solution to late payment for small businesses? Despite some tightening of rules around late payment, recent legislative attempts have had only a limited impact, and while steps to beef up the Prompt Payment Code are a positive, business owners are unlikely to be overly optimistic given the previous performance of the initiative.

Interestingly, there is a growing emphasis on how digital solutions can helps SME manage the impact of late payment, from the greater digitalisation of the supply chain and the creation of more streamlined and sustainable systems, to the introduction of targeted payment solutions, such as invoice finance platforms and apps.

With this in mind, it is clear that small business owners need to be aware of all the solutions that can help manage the impact that late payment has on their cashflow. Notably, the services of alternative lenders, in particular invoice finance, can play a key role.

How invoice finance can help SME manage late payment

With regard to alternative finance, in the wake of prolonged caution from traditional lenders, which is an issue that has returned during the pandemic, invoice finance and other alternative lending services 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 recovery and regrowth. Notably, invoice finance is allowing firms to secure capital without putting key business relationships at risk. As much as 90% of an approved invoice can be advanced by a finance provider, with the remainder settled by the client.

Furthermore, alternative lending is playing a prominent role in the government’s headline emergency support scheme, the Recovery Loan Scheme. Invoice finance and asset finance between £1,000 and £10 million per business are available under the initiative. This profile is helping cement the reputation of alternative finance in the business sector.

Tackling late payment and SME finance options

While the light at the end of the tunnel is getting brighter, times are still desperately tough for small businesses. This makes these firms particularly vulnerable to late payment and makes it especially important that business owners are equipped to deal with the impact. This is why it is vital that firms are aware of all the solutions to late payment, including invoice finance.

To find out more about A&T Business Associates services, contact Steve Bowles on 01903 602211 or steve.bowles@atbusinessassociates.co.uk.