How are late payments impacting SMEs now?

SMEs make up 99.9% of the UK’s business population, but these smaller enterprises are more likely to face cash flow challenges as a result of late payments.

Unlike bigger corporations that often have deep cash reserves, small and medium sized businesses may not have access to surplus working capital. When invoices are paid outside of contractually agreed terms, it can put a significant strain on income or impair carefully planned forecasts.

Late payments now

While this is not a new phenomenon – SMEs and business groups have been warning that overdue payments put significant pressure on operations for some time - the current situation brings issues surrounding B2B payments and receivables into sharp focus.

Invoice payments that are delayed or withheld can be both costly and time consuming at any time. Now, combined with a reduction in new business opportunities during the pandemic, they could have starker consequences than ever.

Consider the knock-on effect of cash being tied up in unpaid customer invoices. Firstly, chasing payments can act as a distraction at a time when attention to wider strategy is critical. Moreover, the inability to access working capital can hinder immediate operations, prevent new orders from being taken on and stop overheads from being covered.

As the country emerges from lockdown, businesses that receive timely compensation goods and services rendered will find it easier to trade, plan and move forwards. Put simply: access to working capital can facilitate business-as-usual not only in direct supply chains, but across the economy.

Invoice finance

Businesses that are re-evaluating their funding may consider unlocking cash from unpaid customer bills upfront by using an invoice finance facility. It works simply: when a business raises an invoice, they receive up to 90% of the total value straight away, and then they are paid the remaining percentage (less pre-agreed fees) once their customer settles the balance.

This type of finance can enable businesses to operate in the knowledge that they will quickly receive cash when they complete a contract. It safeguards firms from working capital gaps caused by late payments, enabling them to stay one step ahead and ensure cash flow remains steady on an ongoing basis.