News Article

Sector Analysis

Access to alternative finance could turn around the late payment issue for SMEs, says Bibby Financial Services

By CreditMan Thursday, September 17, 2009

Responding to the recent announcement by the Federation of Small Businesses (FSB)* that some small firms are now waiting up to four months to receive payment from larger organistions, Edward Rimmer, UK chief executive at leading independent invoice financier Bibby Financial Services, said that as few large firms have signed up to the Governments Prompt Payment Code, the solution for SMEs is for their larger clients to sign up to alternative finance funding such as invoice finance.

Edward Rimmer said: Large businesses retain a certain level of resilience to late payment due to their size, but to fall so far behind in their own supplier payments, effectively unbalancing the entire marketplace, is both unacceptable and unnecessary.

Edward continued: The Governments Prompt Payment Code, which was launched towards the end of last year, has gone some way to reduce the late payment issue with some big names, such as John Lewis and ASDA signing up. However, wed like to see it taken one stage further with large firms signing up to a funding facility with alternative finance providers such as factors or merchant banks bridging the cash flow gap. This will provide cash to SMEs while they wait for the invoice to be processed, ensuring that cash flows more freely into more small businesses.

The launch of an on-time invoice settlement system would also ensure larger businesses pay on time. Wed like to see larger companies automatically providing a due date for billing through their bank within the first week of satisfactory delivery of a product or service. This would provide more certainty for small businesses as to when they will be getting paid.

Edward added: Alternative finance, and particularly factoring, can go some way to providing certainty of cash flow as opposed to bank overdrafts, as the hassle of credit control is taken away, freeing up valuable time for companies which struggle to find the time to chase late payments. Typical service fees depending on the size of the business are around 1 per cent and, as factoring grows in-line with a business, there is no renegotiation on the service provided as there is with the banks. This makes invoice finance a viable and cost-efficient option to help avoid the late payment trap.

Bibby Financial Services recently conducted research which showed that this late payment ripple effect is impacting on more than half of existing UK businesses and could be costing them as much as 2 billion a year in cash flow.

Edward concluded: All businesses have a responsibility to operate fairly and consistently and should seek both to support and nurture the industries they drive by enlisting a policy of best practice in all that they undertake.