News Article

Factoring & Invoice Discounting

Government failing to promote solutions to late payment issues

By CreditMan Monday, January 19, 2015

Smaller suppliers could mitigate the issue of late payment from their larger customers if the Government followed through on its commitment in its 2012 Breedon Report* to promote alternative funding mechanisms such as invoice finance.

The comment follows reports in the news yesterday of 120-day payment terms imposed by the drinks firm AB InBev on its UK suppliers and the funding ‘gap’ that this creates while waiting to be paid.

But this gap could be bridged and payment terms mitigated through a simple mechanism such as invoice finance that advances money against the value of an invoice immediately it has been raised according to the UK’s largest independent commercial finance broker Touch Financial.

Simon Carter, a Director of Touch Financial, says that while the Government and the media understandably focuses on late payment terms, they both respectively fail to offer any appropriate solutions: “Everyone is quick on rhetoric to condemn late payment and the problems it causes, but often slow to promote their own recommendations in terms of banked and non-banked solutions that ensure the cash keeps flowing,” he explains.

Suppliers to AB InBev, and to both Mars and Premier Foods who also announced changes to payment terms last year, could all have benefited from invoice finance Mr Carter continues: “In the Breedon Report published in 2012, widely reported in the Press, the Government committed to promoting alternative funding means such as invoice finance, but since then there has been radio silence.

“Yes it is right to condemn poor payment practices, but this should be countered with more informed comment and insight on what small businesses really need, and what solutions are available.”

Invoice finance is a means of cash flow finance that advances up to 95% of the invoice value immediately, and the balance once the amount is settled. The cost is a percentage of the amount being loaned and the product works equally well for businesses if the money is needed quickly to pay their own suppliers or staff, or it is looking to fulfil new orders and grow.

Mr Carter acknowledges that the Government has recently announced a new package of funding for start-ups, but believes that this is not tackling the core issue: “It makes a good headline but does not help existing SMEs to prosper and grow,” he says.

“When a company with a good order book and a solid financial track record is not able to get finance from the banks to meet new business opportunities, then it can be all seem very perplexing,” Mr Carter adds. “This is especially true for companies in sectors where there are weekly wage bills to pay such as recruitment and construction.

“But that does not mean that appropriate funding cannot be found. Invoice finance helps to keep the cash flowing through a business, and not be held to ransom by their larger customers, and the Government should do more to promote it,” he concludes.

Since it started six years ago, Touch Financial has helped to deliver an estimated £231,000,000 to UK SMEs by broking alternative commercial funding solutions, including invoice finance.

*Boosting Finance Options for Business – the Department of Business, Innovation and Skills, March 16, 2012. Author Tim Breedon.