SMEs account for 99.9% of all UK businesses, yet it is estimated that they have to wait an average of 72 days to receive payment from outstanding invoices.
According to Asset Based Finance Association (ABFA), the UK late payment debt has increased. There is now an estimated £26billion worth of unpaid invoices outstanding to small and medium sized businesses with a turnover of £1million and an average of 72 days wait for payments to be received, 25 days more than large businesses.
Jeff Longhurst, Chief Executive of ABFA, comments: “Despite the economic recovery gathering pace, payment delays are getting worse, not better, for small businesses… Delays to payments put enormous pressure on small businesses’ cash flow – they have to meet overheads, tax bills and their own supplier invoices whether they’ve been paid or not. Smaller businesses are particularly vulnerable.”To now tackle this problem the government is introducing a variety of measures as part of their Small Business, Enterprise and Employment Act 2015. Small Business Minster, Anna Soubry states that the commissioner will, “tackle the imbalance of bargaining power between small suppliers and large customers”. One way in which this is going to be done is through shaming big companies that fail to pay their bills in a reasonable time (although the commissioner will only do this as a last resort). Alongside this, The Small Business Commissioner will also provide SMEs with further support, mediation and conciliation services, as well as being available to investigate complaints against large companies.
However, most importantly of all, The Small Business, Enterprise and Employment Act 2015 will now provide more leniency and less financial restrictions for SMEs when using Invoice Finance. The ‘Bans on assignment’ rule has hindered SMEs from using Invoice Finance as a source of funding, which may be contributing to the growing late payment issue. The rule prevents businesses from selling their invoices, making it extremely difficult for SMEs to work with public sector or larger businesses. The key benefit of using Invoice Financing is that SMEs can unlock the cash they need immediately, rather than waiting for debtors to pay. This tackles not only the late payment problem, but also helps SMEs with their cash flow. The measures to nullify the’ bans on assignment’ law will come into effect from early 2016, if approved. The Government will also employ a commissioner to focus on supply chain and late payment disputes.