Member Article

SMEs must stand up to late payments this summer

With the British summer in full swing and the nation beginning to leave for the summer holidays, businesses across the UK must protect themselves from the increased risk of slow or late payments at this time of year.

Small and medium sized enterprises (SMEs) struggle with slow or delayed payments all year round and as the new Secretary of State for Business, Sajid Javid, put it in his very first speech in his new role, slow or late payments can drive an enterprise into bankruptcy.

Small business owners constantly deal with invoices that are paid late, or to ever-longer payment terms. The scale of the problem cannot be overstated – SMEs are owed nearly £40billion as a result of late payments according to data published by Bacs Payment Schemes.

It’s no different to your employer not delivering your salary on time. If you’re saving for a summer trip and your pay packet is delayed indefinitely, then your plans are set back if not shelved. Equally if you run a business that needs to invest in new machinery to meet a big order, and you expect to have the cash flow to carry it out, not being paid on time by a customer can be debilitating.

The issue is particularly acute during the summer because finance departments across the country can find themselves short-staffed due to holiday leave. More than usual, businesses will experience delays. So if there’s a time to face up to the late payments challenge, it’s now.

So what do business owners need to do? The basics are a good place to start. Being familiar with your clients’ payment processes, while using the right purchase order numbers in all correspondence will put you in good stead. A customer may look for any excuse to delay a payment. This way, you will not give them any.

Cash flow forecasting is another must. Being on top of what money is coming in and what is going out will enable you to spot a late payment as soon as it occurs. Being able to promptly chase up a delayed invoice, there and then, is better than noticing it too late.

Yet even with the world’s smoothest accounting procedures, a late payment can often be unavoidable. For ambitious businesses that do not want to be held back by arbitrary late payments, lending options such as invoice finance can provide that cash flow boost.

Invoice finance works by effectively brining in an intermediary to buy your unpaid client bills for a fee. This way, dormant cash on your balance sheet is unlocked and any late payments are virtually ‘cashed-in’.

More businesses are finding it to be an effective way to navigate the cash-flow minefield. The latest research released by industry body, the Asset Based Finance Association (ABFA), shows that invoice finance is more popular than it has ever been. At the end of March 2015, UK businesses were using a total of £18.9billion of asset based finance – with invoice finance accounting for 78 per cent of the total.

As the spectre of late payments looms at this time of year, financial diligence and options such as invoice finance can ensure that SMEs enjoy summer, just like the rest of us.

Stephen Hand is an area director for the Home Counties in Lloyds Bank’s global transaction banking team

This was posted in Bdaily's Members' News section by Stephen Hand .