With small business margins already at breaking point, a surge in late payments over the winter could result in thousands of insolvencies. Against a backdrop of unprecedented headwinds, how can these firms safeguard cashflow and stay in business?

A new study from Xero puts a price on the cost of late payment practices for the small business sector, at a staggering £684 million per year. The research found that almost half of small business invoices were paid late in 2021, with over 10% settled more than a month overdue.

This extra pressure on cashflow comes at the same time as small business costs have increased dramatically and continue to rise, thanks to supply chain disruption, staff shortages and ballooning energy prices. Indeed, there is fear that these factors, allied with rising inflation, will see an upturn in the incidence of late payment over the winter.

What a new surge in late payment could cause

The info on late payments paints a bleak picture for small businesses, with the findings from Xero chiming with those published earlier in the year by the Federation for Small Businesses. The organisation pointed to an increase in the late payment of invoices to small businesses and warned that without action, as many as 450,000 could be forced to close.

Where this action will come from and when it will materialise remain a matter of contention and the mounting concern for small businesses in 2023 underlines the continued failure to address the issue. Governments have come and go and while there has been plenty of speeches and statements on the topic, there has been precious little meaningful action.

Safeguarding cashflow and how alternative finance can help

Given the inability of policymakers to authoritatively address the issue, it is critical that small firms are proactive in their approach to managing late payment. And this is where invoice finance can ease the burden.

In the wake of prolonged caution from traditional lenders, which is an issue that has returned during the pandemic and amid challenging market conditions in 2022, services such as invoice finance and other alternative finance facilities are proving a vital source of capital for small businesses, both for maintaining cashflow and for facilitating investment.

These facilities, which offer a more easily accessible and personalised approach to lending, are helping small businesses survive and target recovery, stability and growth. In particular, 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.

Notably, alternative lending has played a prominent role in the government’s headline emergency support schemes, including the Recovery Loan Scheme. This profile has helped cement the reputation of alternative finance in the business sector.

Surviving late payment and small firm finance options

As economic conditions worsen, growing concern over an increase in late payments comes as little surprise. But with operating margins already stretched to breaking point, such a surge could prove catastrophic for the small business sector and the economy. To help survive this storm, small businesses need to be aware of all the finance options available to them, including the services of invoice finance providers.

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