Late payment is a prevailing problem for many SMEs. In harsh economic times, this can badly impact on cash flow and the potential for healthy working capital. Recent research has shown that the value of unpaid bills to small businesses has reached its highest level in nearly five years – this will come as bad news to any small or medium business looking for ways to finance growth and day to day running.
Late Payment Debts
Unpaid bills to SMEs has reached £35.3bn, the highest level in five years, according to Bacs. This is a rise of £2bn compared to the first half of 2011.
The average amount owed to small businesses at the end of last year was up to £45,000, an increase on the average £39,000 at the start of the year. However, the survey has also shown that the number of businesses experiencing this problem has fallen – which implies that the amount owed to some small businesses is growing.
The average wait time experienced by companies is up to 29.5 days from 28 days in the first half of 2011. Worryingly, some large companies are insisting on payment terms of up to 120 days – which could leave SMEs hanging on for months on end.
For any business looking to combat late payment problems, it’s essential to keep on top of client debts and payments. Setting out strict payment terms can help, but for businesses who regularly provide services or goods to large companies it can be hard to exert an influence.
Looking to alternative means of financing can help – most specifically invoice finance, which raises money against unpaid invoices letting businesses release their value without needing to wait for long periods. It’s possible to get 90% of the value of an invoice to you within 24hours, without taking on any new debt and without paying high interest fees. Once the customer has cleared their invoice, the remaining 10% will be release minus a small lenders fee.
For any business struggling with late payment problems, maintaining cash flow should be a high priority. Invoice finance, factoring and invoice discounting can be an answer, giving a flexible, secure and affordable solution to financing worries.