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Pressures of Late Payment

Though many small businesses may have survived the worst of the recession, there are still long term effects that could have negative effects. Not only is growth slow to get going in many sectors – as shown in the double dip recession – but there have been effects on the supply chain mentality of many businesses. Vendors are demanding faster payment, customers are taking longer to pay, and vital funding routes from the banks are becoming harder to access. This all creates a vicious circle, that many small businesses could find dangerous.

This legacy of the recession means that those businesses with the least influence – like local SMEs without huge reserves of funds and limited cash flow – will be most impacted. It’s important to look for alternative finance solutions, such as invoice finance, in order to keep afloat.

Amongst private companies, the average time it has taken to collect invoice payment has risen by nearly a week over the past four years. Whilst this may not seem like long, if all accounts receivable do the same, this quickly adds up to big outstanding debts.

Companies at the top of supply chains take the longest to pay their suppliers – 46 days on average in the most recent quarter. This means it takes a long time for the funds to trickle down to those small companies at the bottom who are in need of the funds.

Businesses are also being stretched in the opposite way, as their customers take longer to clear their debts. It’s not uncommon to see payments left for 60 or even 90 days, which puts a big squeeze on small businesses.

Invoice finance is one way to increase cash flow by releasing funds tied up in unpaid invoices. This means that rather than waiting for customers to pay which then puts payment to suppliers behind, you can get the money often within 24 hours, letting your payment schedule stay on track.

Many businesses go under despite having full order books, all due to not having the cash flow they need to pay suppliers and clear their bills. Invoice discounting, factoring and asset based lending can all help small businesses to to stay afloat, freeing up cash to stop the late payment squeeze.


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