Late payments are hurting small and medium-sized businesses across the UK, the findings of a new study by BACS payment schemes has found. The companies affected are owed a total of around £14bn by their customers which is harming their affordability and ability to grow, expand and meet their liabilities.
Although, £14bn is an improvement on the £30.3bn owed five years ago, it is still harming the performance and viability of many SME’s, companies which are the backbone of the UK’s economy. More than a third of the 1.7m SME’s in the UK say that their payments are often prolonged well beyond the agreed terms which can push some businesses over the edge.
A fifth of small businesses say they are facing insolvency if they are owed between £20,000 and £50,000 with around 7% stating that they are already in the danger zone. As a result, a quarter of small businesses have said that they rely on borrowing cash to be able to meet their essential overheads with bank overdrafts in particular becoming more and more common.
However, it is not just the affordability issue which is affecting businesses as many companies spend nearly four hours a week chasing late payments with 12% employing a dedicated person to pursue outstanding payments. With delays for payments ranging from a month for a third of companies and more than 60 days for 20% of businesses, this is a growing issue which is having a big impact across SME’s of all sectors.
For businesses that are struggling with late payments, there are ways that they can deal with this through invoice finance which provides them with the money they need, frees up time and in many cases, ensures they don’t get into debt as a result of delayed payments.
Invoice finance comprises products including invoice discounting, factoring and spot factoring and can help B2B businesses deal with late payments by providing them with a portion of the money, usually up to 90%, of what they are owed. When the debtor has paid, the factoring company will release the rest of the funds, minus their fee.
If you run a B2B business there are three main options available, each differs slightly and the option you choose will depend on your business’ circumstances. Here’s what you need to know about the three different types of invoice finance:
- Invoice discounting – This provides you with the money that you need financed against your invoices but it allows you the control and flexibility to continue to deal with your clients when chasing payments. For larger companies, in particular, this can be beneficial as they may not want to advertise that they are factoring their invoices and they are likely to want to keep up their current levels of customer service. For more information regarding invoice discounting, visit our invoice discounting page.
- Factoring – Again, factoring allows you to plug financial gaps as a result of late payments to ensure you can meet monthly payments and help your business finance expansion. Where factoring differs from invoice discounting is that your customers pay directly to the factoring company who generally manage your ledger and chase payments for you. This can be a good thing for companies who cannot afford to employ a dedicated person to deal with this or who no longer have the time to dedicate to chasing payments, or are simply not very good at it. To find out more about factoring, visit our factoring page.
- Spot factoring – This is a one off solution to an unexpected late payment or a slight blip in cash flow where you can finance one or two specific invoices without the need to set up a full financing facility. This can provide you with the flexibility and cash you require as and when you need it but if this problem arises regularly then one of the above mentioned products would probably be more suitable for your business. To find out more about spot factoring, visit our spot factoring page.
For more information regarding invoice finance and how it can benefit your business, call us on 0800 084 3923 to speak to one of our initial advisers. They will be able to discuss the best options for your business with you and obtain quotes from funders to find you the best deal on the market.