It’s election season and the promises are coming thick and fast – one is to finally eradicate late payment to small firms. What’s the plan and will it be the solution that business owners have long hoped for?

What is late payment costing small firms and the economy?

How much store should be placed in election-time pledges, whoever is making them, is a matter for much debate, but there is no doubt that when it comes to wooing small business votes, the issue of late payment is front and centre. And so it should be – it costs firms billions every year and causes countless companies to collapse.

According to the Office of the Small Business Commissioner, fixing the long-standing late payment problem could pump around £2.5 billion into the economy on an annual basis. It’s not an exaggeration to say that such an infusion is desperately needed.

The Office has published research that shows that a third of payment to small firms are late, with the average value of each payment at over £6,000. These figures are reminder, if one is needed, of why the issue weighs so heavy on small businesses, and why organisations such as the Federation of Small Businesses are consistent in calling for meaningful action to address it.

What is the latest fix-all solution to the late payment problem?

The latest solution to the problem comes from the Labour Party, which claims the solution lies in requiring large firms to report on their payment practices, with the audit committees of these companies having to issue reports on late payments.

This sounds good, but it has to be taken with the heavy pinch of salt (or more), because small businesses have been here before. A small business owner would need many hands to count all the proposals and proclamations about ending late payment on their fingers. Politicians are good are talking the talk, but have come up severely lacking when it comes to walking the walk, including with regard to imposing more controls of big businesses.

Surviving late payment and how alternative lenders can help

If small businesses can’t rely on political promises and pledges, however well meant, what can they do? Alternative finance can help.

Services such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses in the current funding climate (with 65% more SMEs experiencing difficulty in accessing finance from high-street banks).

These alternative finance facilities, which offer a more easily accessible, affordable 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.

This profile has helped cement the reputation of alternative finance in the business sector. According to the British Business Bank, it is alternative lenders that are increasing filling the small business funding gap, with asset finance alone rising by 7% to £23.5 billion in 2023. At the same time, a 2024 study shows that more and more SMEs are turning to alternative lenders to access larger-scale finance packages.

Small firm finance options for managing late payment

The renewed focus on tackling late payment is a positive sign, but small business owners won’t be holding their breath. The proof will very much be in the pudding when it comes to this issue. As such, it is vital that firms are on the front foot when it comes to dealing with overdue invoices and this is why it is important that owners and directors are aware of all the options available to them for managing the practice, including invoice finance.

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