Chasing invoices and late payments can be a drain the resources of many UK small and medium businesses. This is becoming a growing problem as more and more SMEs struggle to release the capital tied up in late payments, made even more urgent by the uncertain economic outlook for many of them.
The latest report from Lloyds TSB, their bi-annual Business in Britain survey, shows that over a quarter of UK SMEs worry about their cash flow. Late payments were seen to be the biggest culprit, with 56% citing them as the main cause.
Across the 1,800 firms surveyed, the number experiencing cash flow problems had increased by 10% since the last survey. The worst hit sectors included construction, professional services and manufacturing.
Some of the biggest sufferers were in the North East and Cumbria, where over three quarters of businesses were experiencing cash flow problems related to late payments. The rise in companies experiencing these problems in these areas has increased by nearly a third over the past six months.
This is an issue all businesses should take note of. By chasing invoices and credit checking all customers, it may be possible to avoid becoming affected by late payment issues. However, it is still difficult to do so and do so effectively on limited budgets.
Lloyds expect to see invoice financing and factoring to increase in popularity in 2012, as businesses try to find a remedy for their late payment problems. Businesses affected by this often experience a lack of working capital, further restricted by economic uncertainty. Factoring can release the money tied up in invoices giving extra flexibility.
The built in credit control function is an aspect of factoring that Lloyds sees as particularly relevant to SMEs. Many will not have their own dedicated finance department, and so any assistance with chasing invoices can be especially valuable.