The pressure late
payment is exerting on SMEs plays a leading role on the rocky path
to recovery
More than £35bn is
owed in outstanding payments to UK SMEs. In addition, it is being
widely reported that the larger and, typically, financially
healthier businesses are the primary source of this grief for
smaller companies. Indeed, we regularly read reports of corporates
dictating their suppliers’ credit terms and not paying the invoive
for as long as four months after it was raised.
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As a result, the Forum
for Private Business recently joined a growing list of
organisations calling on these larger businesses to sign up to the
Prompt Payment Code. As it stands, just one in four of the FTSE 100
are currently registered. With the government hoping the country’s
smaller businesses will help to kick start growth, something needs
to be done to ease this pressure.
Since the credit
crunch, the government has introduced a number initiatives in a bid
to stimulate the flow of credit to smaller businesses, most
recently the Bank of England’s Funding for Lending Scheme. With a
remit of reducing the cost of borrowing to enable lenders to offer
cheaper and more accessible loans, it is another example of the
government promoting the use of traditional funding
methods.
However, the problem
is, in the current climate where businesses need to be as proactive
as possible, facilities such as overdrafts and bank loans are often
not flexible enough and fail to tackle the critical late payment
issue. In this context, the latest quarterly statistics from the
Asset Based Finance Association make for encouraging reading. While
the level of funding advanced during the first three months of 2012
increased year-on-year by 4% and client numbers grew by 2%, the
biggest source of encouragement was evidenced by the way
asset-based finance continued to help businesses struggling to get
paid on time.
Facilities typically
release up to 90% of an invoice’s value within 24 hours of its
issue to overcome the challenges associated with trading on credit
terms, while bad debt protection can also be incorporated. This
shield of cover has arguably proven extremely valuable over the
past 12 months, during which credit protection payments made to
clients rising by a massive 44%.
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By GlobalDataIt’s therefore no
coincidence that clients using such facilities saw their sales rise
by 8% over the same period as they benefited from the confidence to
seek and secure new business. This optimism could be fundamental to
the economy’s return to sustained growth, and epitomises the
importance of opportunities for businesses to find strength in the
ongoing adversity over the coming months.
Evette Orams is
managing director of Hilton-Baird Financial
Solutions
