Late payments have been a growing concern in Britain since the financial crisis of 2008 and despite recent steps towards economic recovery, are still proving extremely problematic. However, the government has finally decided to accelerate efforts to remedy the issue and have confirmed a number of new measures that are due to be implemented next year.

The perils of late payment

These moves come as part of the government’s wider Small Business, Enterprise and Employment Act, which aims to throw a lifeline to those businesses cracking under the pressure of a multi-billion pound late payment problem. Currently, SMEs are waiting an average of 72 days for invoices to be paid, which is an additional day on top of the same time last year. These pending debts have been given an estimated monetary worth of a whopping £26billion which, let’s face it, the micro-enterprise industry could really do with right now.

This wait time is, on average, an extra 11 days on what it was even at the height of the most recent recession. John Atkinson, head of commercial business at Hitachi Capital Invoice Finance, said: “This was taken as a protective measure to safeguard their financial positions during the credit crunch and it became the norm for many businesses to pay late.

“In essence, the longer that firms are able to hold onto money, it allows them to strengthen their position and make funds work harder. But it’s Britain’s small businesses that have felt the brunt of this.”

However, the government has acknowledged the detrimental effects of poor payment practice and is taking steps towards improving the situation. Part of this plight includes the relaxing of invoice finance rules, which was announced earlier this week and is the good news many small business owners have been waiting to hear.

A positive change for Britain’s SMEs

Invoice finance companies provide businesses with the cash they need up front (for a small fee, of course), based on the value of any unpaid invoices. This service is being used by over 44,000 businesses across the UK to fund working capital and lessen the impact of late payments. So-called ‘bans on assignment’ rules prevent small businesses from using invoice finance but the new regulations will alleviate this issue by easing cashflow issues and helping them plan ahead financially with more confidence.

Atkinson commented: “This change is long overdue and is an extremely positive step for the growth of Britain’s SMES” and explained how “unpaid invoices are the biggest asset some small businesses have and the law has been unfairly stacked against them until now.”

He added: “For larger firms that practice late payment, time is running out and they now need to adapt practices or risk suffering reputational damage in the future.

“The logical next step might be for the government to outlaw those businesses that pay beyond 90 days. Research conducted amongst our clients revealed that some of the worst offenders take up to 121 days to pay which is simply not acceptable. Late payment and ‘bans on assignment’ have been allowed to hamper that growth and this is a positive first step for businesses.”

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Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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