The business sector is ever-changing, but there is one thing, as an SME lender, I can absolutely depend onm, says Anthony Persse, Director of Strategy, Ultimate Finance.
Every month I know that many clients will come to us needing funding and many of them will be doing it out of necessity.
These reluctant firms are still sound businesses. They have good credit ratings, assets and we don’t hesitate to hand over our cash.
I’m talking, of course, about the huge numbers of SMEs that turn to invoice finance because they are being paid late by their customers, rather than to fund growth.
Many firms use invoice finance to free up money they are owed so they can put it to good use. This is great and shows a business is on the right path.
However, the enterprises I’m talking about have no choice. They are being squeezed by customers withholding their cash when payment is overdue.
The UK is no longer a nation of shopkeepers but it is to Britain’s credit that it is home to 5.4million SMEs employing more than 15million people.
According to the FSB's latest figures, an incredible 50,000 small businesses could have been saved in a single year had invoices been paid on time. Jobs, relationships and dreams went to the wall, not to mention the £2.5bn cost to the UK economy.
UK business, from its supply chains to labour markets and funders, is more interconnected than ever. We are an economy held together by a glue of invoices and transactions.
Large corporations are often painted as the bullies of the playground when there’s a bottleneck but I wish it was that simple. The reality is large firms can have cash flow issues of their own on a scale that is quite extraordinary.
Even though they are viewed as being at the top of the payment tree, there really is no top or bottom. In the end, the money they use to pay suppliers can come full circle from the very people whose wages that money pays.
That’s why the Government shouldn’t legislate on late payments and make what is currently a Prompt Payment Code a matter of law – it’s an impossible task.
So, how do we work together to make this work for everyone?
The answer is education and transparency, helping the largest firms change their culture en masse, to recognise the value to the economy of prompt payment and how it serves their own interests too.
More than £26bn in late payments is owing to SMEs according to research by Bacs, the payments processing company. The Asset Based Finance Association (ABFA) reports that smaller manufactures wait an average 14 weeks to be paid. Just imagine the scale of investment that would be unleashed if this were not the case.
No longer would the costs of waiting for payment be factored into the prices that SMEs charge.
The entrepreneurs themselves, freed from this business bind, would be able to use invoice finance solely to borrow with ambition to pay for the things that really matter – jobs, new products, new equipment, new premises.
The Government response to late payments has been to announce that large companies and their directors will face criminal prosecution if they don’t declare how they treat their suppliers twice a year.
It’s well meant but the threat of prosecution isn’t the right approach. Business needs flexibility and if it can’t have that, the number of transactions in our economy will fall.
As the uncertainty of Brexit looms, now is the time to tackle late payments for the common good - a stronger economy and a robust jobs market less vulnerable to shocks.