As the UK economy lurches towards recession, late payment is back among the top concerns for small businesses. As pressure mounts of cashflow, the sector needs a solution, but what is it?

What firms are worst hit by late payment?

Late payment has long been a thorn in the side of small businesses, but given the current state of given the economy, with the market being battered by unprecedented headwinds, the untimely uptick in the practice could wreak havoc in a key sector.

According to the latest edition of the Small Business Index from the Federation of Small Businesses (FSB), late payment is on the rise, with over 50% of small firms affected by the late payment of invoices in Q3 2022. Business-to-businesses companies are among the most severely affected, along with small manufacturing firms.

Findings from a recent study carried out by Xero paint a similar picture to that depicted by the FSB. According to the research, the average time taken for small businesses to be paid rose to 30.4 days in July 2022, from 28.8 days in 2021. Data from Revenu shows that on average, small businesses are owed over £6,500 in late payments.

Notably, according to the Xero study, over 50% of large organisations have owned up to paying their small suppliers late, with over two thirds admitting to facing legal action from small firms over late payments.

Tackling late payment and how alternative finance can help

The worsening of the late payment problem has prompted a fresh focus on solutions. Suggestions have included European-style legislation that allows small businesses to charge late payers a higher rate of interest and a call to get all public sector suppliers to sign up to the Prompt Payment Code, according to which suppliers agree to pay within 60 days.

The renewed interest in addressing the issue of late payment is certainly welcome, but whether it leads to any meaningful action remains to be seen. Small business owners are unlikely to get carried away – the sector has been here many times before.

As such, with policymakers and industry representatives seemingly unable to tackle the problem, it is vital that small businesses take a proactive approach to managing late payment. Using invoice finance is one way in which they can do so.

How invoice finance can help firms manage late payment

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.

Dealing with late payment and small firm finance options

With economic conditions set for another slump, an increase in late payment is the last thing small businesses need. But this is what is happening and to safeguard cashflow, it has to be managed. To help do so, small firms need to be aware of all the finance options available to them, including the services of alternative lenders.

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