How to ensure late payments don't fail your business.

Updated: Dec 3, 2019

According to XERO Small Business Insights the average British SME is owed £24,841 in late payments. These late payments contribute to the 50,000 small businesses that fail each year in the UK. For those that can survive these cash flow irregularities, outstanding late payment debt negatively effects their credit rating, making it then harder for that company to raise funds to cover any shortfall when it does occur.

Xero, the accounting software, publishes live anonymous data based on their users invoicing, there are some very interesting insights. In February 2019, the average 30-day term invoice was paid in 40 days, worse still is that FTSE 350 companies pay on average 46 days following receipt of an invoice.

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Edward Berks, EMEA Director had this to say: “Our data shows the impact that this level of debt can have on small companies. Predicting working capital requirement still remains a challenge for small businesses and accessing finance remains expensive and time consuming”.

The government has been clamping down on late payers over the last ten years launching multiple initiatives such as the Prompt Payment Code. However, more still needs to be done, especially surrounding the late paying large corporates. Until the day where 30- day payment terms mean 30 days, SMEs must remain agile, especially if they are going to navigate the current economic uncertainty.

At GSM Finance, we believe that correctly structured finance deals, using asset finance regardless of hire purchase or leasing, is one of the best ways SMEs can manage late payments and cash flow irregularities. For example, let’s take a business that has £50,000 in cash in the bank, and £50,000 business loan available to them and they want to invest in a £50,000 piece of equipment. This piece of equipment will allow them to double their number of clients and revenue. They could easily use their cash or bank loan to purchase the asset, and still have £50,000 left at their disposal to cover rent, employee salaries, their own invoices for their supplies (which of course are paid on time) and all other costs. Seems like a lot left?

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What if Brexit impacts their export sales and pushes up their import costs? What if their main client goes bust? What if a client changes supplier? If you are one of the five million SME’s here in the UK, these are probably just a handful of the potential business endangering scenarios that keep you up at night. Now add into the mix that the average time for an invoice to be paid hasn’t been below 37 days since February 2018 and it is easy to see how a series of unfortunate events can easily lead to a successful business going bust.