Late payment is back in the news. Small businesses are facing a cashflow crisis in the second half of the year as customers struggle with payment schedules in the face of their own battle with rising costs. The big question is, how can small firms manage?

An uptick in late payment is the last thing small businesses need, but new research shows a high level of the practice going into the new financial year. According to a NerdWallet survey of 1,000 business leaders, over half indicated that they are waiting for invoices to be paid from the previous tax year, while almost half revealed that they had more outstanding invoices that in 2022-23.

At the same time, according to a Time Finance study, around 75% of SMEs are concerned about cashflow difficulties relating to late payment of invoices, with smaller firms owed on average £250,000. Unsurprisingly, the study also reveals that owners are unable to make key investments in their businesses as a result.

What late payment issues are small firms facing?

Rising costs are already putting incredible pressure on cashflow as firms struggle to absorb higher bills for energy, materials and staffing. Of course, small businesses aren’t the only ones battling these headwinds and the result is late payment issues involving larger companies that have their own costs problems.

While it is true that larger businesses should be able to manage rising costs in a way that does not pass on the problem to smaller firms in the form of delaying payments, these small businesses face a tough balancing act in ensuring that they get paid. According to the Time Finance research, around a fifth of SMEs said that chasing late payments had damaged customer relationships.

Another problem for small businesses is that public and private sector attempts to tackle the problem have consistently deliver very little in the way of results. Recent conditions have led to more calls for action and more pointed soundbites, in particular in relation to government intervention. However, based on past experiences, small business owners are unlikely to be optimistic about developments.

Late payment and how invoice finance can help

So, against this backdrop of rising costs and the vulnerability of business relationships, what can small businesses do to manage the impact of late payment?

Invoice finance can help.

In the wake of prolonged caution from traditional lenders, which is an issue that has returned amid challenging market conditions, 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 played a prominent role in the government’s headline emergency support schemes. This profile has helped cement the reputation of invoice finance and other facilities in the business sector, with recent studies showing that invoice finance is the highest ranked alternative finance facility, with its role in supporting cashflow key, and that more than 50% of small businesses are looking to use finance to achieve growth in 2023.

Late payment management and small firm finance options

Late payment has long been a thorn in the side of small firms, but now the pain it is causing is particularly acute. For small businesses to afford the investment needed for survival and growth, the impact of late payment must be managed. This is why awareness of invoice finance and other alternative finance services is critical.

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