The late payment alarm bells are ringing again for small businesses. With firms continuing to suffer, there is a growing fear that the matter could spiral out of control if a solution can’t be found. How can firms manage the situation?

According to a new report from FreeAgent, almost half of small business invoices sent in the year to June 2024 were paid late – a staggering amount. The level represents a notable increase over the figure for the previous year, at 43%.

Critically, in another study, almost 25% of small firm owners admitted feeling that their business was at a risk of failing because of the late payment of invoices. These data highlight the threat that the practice poses to small businesses, the contribution of which to the national economy is vital.

The actual cost of late payment to small businesses runs into the billions. According to a report by Xero earlier in the year, the failure to pay invoices on time cost small firms £1.6 billion as of the end of 2023.

Based on the recent reports, including the one from FreeAgent, the cost looks set to increase for 2024. This is capital the sector can ill afford to have to have kept from them, with pressure on cashflow remaining enormous for most.

Managing late payment and how alternative lenders can help

Tellingly, the FreeAgent research also revealed that small business owners want the Small Business Commissioner given more powers to tackle late payment and for the Prompt Payment Code to be made mandatory.

Whether these wishes are granted remains to be seen. Numerous Small Business Commissioners have talked a good talk but have delivered next to nothing in terms of meaningful action. As for the Prompt Payment Code, it has proven consistently toothless despite much discussion of how it could be made to work better.

So what can small business owners do to manage the impact of late payment and better protect themselves against the practice?

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). 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. Notably, the new Growth Guarantee Scheme will provide a wide range of finance facilities to smaller firms, including invoice finance. This is further proof that alternative lenders are increasing filling the small business funding gap.

Small firm finance options for tackling late payment

The late payment problem seems to be reaching a critical point. Once again, there is talk of reform to address the issue, this time from a new government. But small firms are unlikely to much stock in such news.

As such, it is important that firms put themselves in the strongest possible position when it comes to dealing with overdue invoices. This is why it is essential that business owners are aware of all the options available to them, 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.