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The surging popularity of invoice finance

With cash being crucial to business survival and growth, SMEs need to access cash through alternative funding solutions to continue to enable them to adapt, innovate and grow.

Invoice finance is one of the most effective ways for businesses to improve cash flow and sustain growth in today’s uncertain climate.

As SMEs face up to a deepening late payments crisis, invoice finance – borrowing against the value of unpaid invoices – has surged in popularity to provide crucial support in tough economic times.

By releasing up to 90% of the value of unpaid invoices, businesses can access additional working capital and use the funds to support day-to-day cashflow requirements or fuel future investment plans focusing on corporate social responsibility.

Invoice finance is not a new funding solution; it has been around for decades and has supported many thousands of businesses over the years, as it still does. By unlocking cash that could otherwise be trapped in unpaid invoices, invoice finance is a financial solution that can support the entire credit management process, protect against the risk of non-payment, and deliver funding when many other funding types are unable to.

In the UK, invoice finance has become an increasingly popular alternative to traditional financing options like bank loans and overdrafts, as it offers a more flexible and accessible solution for businesses in need of cash flow support and caters to a wide range of industries, including manufacturing, wholesale, construction, recruitment, and professional services.

Recent data from alternative finance provider Time Finance has shown the growing popularity of invoice finance amongst the B2B community, with demand predicted to rise throughout 2023 as SMEs set out to stabilise their finances.

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The new insight shows that invoice finance is ranked highest amongst alternative finance solutions, with 32% of financial intermediaries stating that invoice finance will be the most popular service to support cashflow this year.

Phil Chesham (pictured), Managing Director of Invoice Finance at Time Finance, commented: “We are seeing a real uplift in businesses that come to us for invoice finance, and this is definitely a trend we expect to see continue throughout 2023. At face value, this is an indicator of the cashflow challenges that businesses are experiencing, but looking at this more positively, we can take this as a sign that more businesses are discovering the real value of invoice finance.

“Invoice Finance is a helpful tool to manage cashflow and when harnessed as a part of a long-term financial strategy, it can ensure that a business has an uninterrupted supply of working capital in the bank. As a result, invoice finance enables businesses to inject their own money into their investment plans, whether that’s recruitment, skills development, equipment or marketing.”

Time Finance’s plans to double their invoice finances sales team in 2023, with the recent appointments of Thomas Ludden, Tariq Bourdouane, Neil Fullbrook and Casey Baldwin, shows the rising popularity of invoice finance witnessed by alternative finance providers.

There are a number of reasons for the rapid expansion of invoice finance in the UK, but a key driver is an increase in the number of late-paying companies. In their research, Time Finance found that B2B businesses are owed an average of £250,000 in unpaid invoices and some wait up to 120 days for payments to come through.

Access to liquidity is more critical than ever for SMEs who are the backbone of the UK economy, with many traditional financing providers increasingly rejecting applications for cash. Reducing the funding available to SME businesses during tough economic periods only hurts it more at a time when demand for liquidity needs to be expanded and not reduced.

Rising inflation and interest rates, along with increasing energy costs, are also challenging small businesses this year, with many facing closure. Providing SMEs with a path to secure lending will play an integral part in the economy’s resurgence.

Invoice finance provides SMEs with a variety of benefits including flexibility, faster turnaround, scalable funding, higher borrowing potential, and mitigating payment risks. Smaller independent funders also have more flexibility than traditional providers and can take advantage of value-creating opportunities.

By embracing alternative financing options such as invoice finance, SMEs can not only survive but also thrive in a post-pandemic world, despite the current economic challenges they face.

By Lisa Laverick

Source: Asset Finance International

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Average SME plans to invest £321k to grow their business

New research from Aldermore’s SME Growth Index has revealed the investment and growth plans of small and medium-sized enterprises (SMEs) in the UK. Despite the ongoing cost-of-living crisis, SMEs plan to spend an average of £321K on growth strategies over the next year. One in eight (12%) SMEs plan to spend over £1 million investing in growth.

SMEs plan to grow online but curb talent spend

A third of businesses want to expand their customer base (33%) and grow their current products and services (29%) in 2023, while also reducing costs to combat the cost-of-living crisis (30%).

To reach their goals, business leaders plan to invest in their online presence. One in four SMEs (26%) will put money into improving or building websites and apps over the next year. This is in addition to investing in digital marketing (24%).

Interestingly, following the ‘Great Resignation’ fears that saw SME-leaders prioritise talent spend in 2022, talent acquisition and increases to employee salary and benefits are likely to see the least investment (17% each respectively) over the next year.

Business leaders continue to put hands in their own pockets to invest

SMEs will often turn to business savings (27%) or various forms of business finance (e.g., asset finance – 11%) to meet their goals. However, nearly two out of five SMEs (18%) will turn to their personal savings and over one in ten will use their own overdraft (12%) to meet business costs.

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Barriers to growth

Despite optimistic plans to invest heavily in the coming year, the biggest concerns SMEs are faced with are high energy costs (24%) and double-digit inflation rises (24%). This will represent the biggest barrier to business growth in 2023.

Those concerned about inflation costs estimate it could lead to delays in existing projects (19%), missed opportunities for growth (21%), and difficulties securing new deals (20%).

Tim Boag (pictured), group managing director of business finance at Aldermore said: “SMEs are the backbone of our business community and their ambitious growth plans over the next year bodes well for the economy, however they also face challenges brought about by high inflation and soaring energy costs.

“At Aldermore, we’ve supported SMEs through challenging times. It’s great to see from their plans that a digital presence for many has become a major priority, as consumer expectations have evolved post-pandemic.

“For business leaders, there are many sources of investment, be it utilising savings or accessing a range of specialist finance products; and at Aldermore we remain fully committed to backing businesses to realise their ambitions.”

By Lisa Laverick

Source: Asset Finance International

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UK SMEs Forced To Borrow Or Raise Almost £50k To Survive Inflationary Crisis

New Nucleus Commercial Finance research highlights the scale of the challenge facing UK SMEs

  • 65% of SMEs are finding the current cost-of-living crisis is proving more of a burden on their business than the pandemic lockdowns
  • Just 33% believe the cost-of-living crisis is proving less of a burden than the pandemic lockdowns
  • An average of £34,433 has been borrowed or raised to support the impact the current energy/inflationary crisis has had on the finances of their business by SMEs.
  • This rises to an average of £49,613 among small/medium sized businesses (companies with 10- 249 headcount)
  • Almost two thirds (64%) of small/ medium sized business have had to borrow or raise any money as a result of the current energy/ inflationary crisis

When asked what single measure would provide the greatest boost to their business at the present time – the top 5 options among small and medium sized businesses were:

  • Re-joining the European Union (19%)
  • Having more tax incentives for innovation/ investment (18%)
  • Improving internal IT/ tech capacity and capability (11%)
  • Having more time to concentrate on innovation and growth (9%)
  • Having greater childcare support from the government (9%)

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Chirag Shah, CEO and Founder of Nucleus Commercial Finance commented: “The scale of the current economic challenge facing UK SMEs vastly exceeds that of the pandemic according to those at the coalface. This is forcing businesses across the UK to reassess their investment and growth strategies, closely examine their overheads, and, more often than not, lean on additional finance just to keep the lights on. In fact, the average amount that small and medium sized businesses have had to borrow money as a result of the current energy and inflationary crisis is now a staggering £50,000. As the crisis continues, the situation is becoming increasingly perilous and UK SMEs need help, badly.

“While some investment commitments were set out in the recent Budget in a bid to kickstart the economy – there is no silver bullet. Crucially, what cannot be allowed to happen is stagnation. Failing to properly support SMEs in the short-term will wreak havoc on the long-term prospects for the UK as a whole.”

BY CHARLOTTE WELTON

Source: Columnist 24

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SMEs are not confident that the Chancellor’s Spring Budget will deliver the support they need

Ahead of the Spring Budget, new data from SME funder Bibby Financial Services (BFS) reveals that small to medium-sized businesses (SMEs) have lost confidence in the Government’s commitment to support them.

In a survey of 500 SMEs from across the UK, four in five (80%) of respondents said they don’t think the government is providing enough support for SMEs.

Meanwhile, two-thirds (67%) are not confident that the Chancellor’s Spring Budget will deliver the support their business needs. This figure shows a decline in businesses’ confidence in the Government since Autumn 2022, when 62% of small to medium sized businesses reported that they were not confident that the Autumn Budget would deliver the support they needed.

Notably female business leaders feel less supported by the government than their male counterparts. 85% of female respondents don’t think the government is providing enough support for SMEs, compared to 77% male respondents, whilst 72% of female respondents are not confident that the Chancellor’s Spring Budget will deliver the support their business needs, compared to 62% of male respondents.

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Jonathan Andrew (pictured), CEO of Bibby Financial Services commented: “The UK’s small to medium-sized businesses have demonstrated incredible resilience over the past few months and years. Hit with crisis after crisis, SMEs have tenaciously adapted and evolved in any way they can to survive. But the difficult economic conditions have played havoc with their ability and desire to invest in innovation and growth.

“SMEs feel underrated, undervalued, under-supported. So, in this budget, we want to see better support and policy that matches SME’s resilience and ambition.

“First, education is key. Government should help to guide businesses to existing resources and initiatives that are currently underutilised, such as the Bank Referral Scheme. Second, the Government could take more effective steps to alleviate the burden for hardworking small businesses by pulling the levers of central and local taxation, such as business rates, and by extending the pay-back period on covid loans.”

“As the Government ‘goes for growth’, those SMEs that are sufficiently equipped to build resilience and invest in their futures will play a vital role in driving the UK’s economic recovery.”

By Lisa Laverick

Source: Asset Finance International

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Study Shows 630,000 Small Businesses At Risk Of Going Bust

630,000 small and microbusinesses could go under this year*, as the cost-of-living crisis puts unprecedented pressure on entrepreneurs trying to stay afloat.

Data analysis of 2.3 million British microbusinesses has revealed that more than one in nine (12%) fear closure before the end of 2023, which could wipe £12 billion off the UK economy**. The annual study – titled Venture Forward – is produced by website builder GoDaddy, which enables small and microbusinesses to sell online.

With the Spring Budget just 10 days away, Venture Forward shows that fewer than one in five (19%) entrepreneurs believe that Rishi Sunak is acting in the best interests of small and microbusinesses.

GoDaddy’s [Venture Forward] data showing that the microbusiness community – businesses with 10 employees or fewer – contributes £98 billion* to the national economy annually. The sector also supports more than six million jobs**, with 17% of the UK’s 5.2 million microbusinesses employing at least one other person.

Entrepreneurs call for help with soaring costs

More than three quarters (77%) of entrepreneurs say that the cost-of-living crisis is the greatest challenge they’ve faced. Rising costs are the biggest issue of concern with energy bills (80%) as the most prominent, followed by transport costs (44%) and the cost of raw materials (43%).

When asked how MPs can help microbusinesses, the most common response was to offer tax incentives (42%), followed by technical assistance for business development and help with digital strategy (both 36%). More than a third (35%) surveyed said access to capital, while three in 10 (30%) asked for subsidised/affordable rent.

Greater concern amongst Black and Asian entrepreneurs

The data also shows that the cost-of-living crisis is having a disproportionate impact on microbusinesses owned by underrepresented entrepreneurs. 85% of Black entrepreneurs say it’s the worst time they can remember, and 84% of Asian entrepreneurs: compared with 75% of white entrepreneurs, shared similar concerns.

Meanwhile, 75% of white microbusiness owners are confident they will survive until the end of 2023. This figure falls to 69% and 68% for black and Asian entrepreneurs respectively.

However, there is cause for some optimism when comparing against last year’s Venture Forward Data. Black founders accounted for 5.4% of pre-pandemic businesses, which rose to 6.6% among those started in 2021. This figure has risen to 7.3% for microbusinesses started in 2022, showing a clear upward trend for black entrepreneurs

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Chris and Sarah Fryer, from Newcastle, set up vegan pie business Magpye in 2019 :“The business has grown consistently since we started, but the past 6-12 months have been very challenging. As a bakery we use a lot of energy, so the rising cost of gas and electricity has dramatically increased our overheads. We are concerned about the energy relief scheme coming to an end in April, and would like to see the Government launch targeted help for energy-intensive businesses like ours.”

“For the majority of microbusinesses, us included, the profits are also the owners’ wages. We are facing a reality of rising costs at home while dealing with falling profits in the business, yet there seems to be little or no support for businesses like ours”

Andrew Gradon, Head of GoDaddy UK & Ireland, said: “Venture Forward demonstrates the enormous contributions made by Britain’s microbusinesses. They have the power to add billions to the economy, while providing jobs and opportunity in their local communities. When they thrive, we all do.”

“But the research also reveals the potentially disastrous consequences that the cost-of-living crisis could have on them. With more than 600,000 microbusinesses saying that they feel at risk of going under this year, it is crucial that they are given adequate support to help negate the rising cost of doing business.”

“We have very few studies that focus specifically on companies with under 10 employees. They are under-researched, misunderstood and often under-served. GoDaddy aims to change that, and we are determined to support and empower the everyday entrepreneurs that are the engine of the British economy.”

By CHARLOTTE WELTON

Source: Columnist24

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4 reasons to source business funding in 2023

There’s no doubt that it’s been a difficult few years, with pandemics, conflicts and the cost of living crisis all contributing to unease and uncertainty. Whether your business has been directly affected or not, you might have put off raising finance or had ambitions dashed by unpredictable circumstances. Caution is wise, but that doesn’t mean you should abandon all your growth plans until things settle down. There are still plenty of good reasons to source business funding in 2023.

Things are looking up(ish)

Contrary to predictions, the UK benefited from a World Cup boost to GDP in November, which may have helped to narrowly avoid a recession. Okay, so that growth might have only been 0.1 per cent, but it shows that there’s always scope for optimism. On top of that, after a period of high inactivity, PWC predicts that 300,000 UK workers could rejoin the labour market in 2023, giving you the opportunity to invest in key talent and plug skills gaps in your business.

There have never been more funding options

Crowdfunding, credit cards, invoice finance, government grants – there have never been more ways to access finance and there’s something out there to suit every type and size of business. In fact, alternative finance options are seeing growth even as other funding sources dry up. According to UK Finance’s Business Finance Review of Q3 2022, levels of invoice finance and asset-based lending surpassed those reported in Q1 2020 following nine quarters of consecutive growth. And businesses that use these types of alternative finance have seen a 14 per cent increase in sales compared to the first three quarters of 2021.

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There’s no time like the present

If you have big ambitions but you’re waiting for things to calm down, you could be waiting a long time. We have a tendency to assume there will come a perfect time to put our plans into action, but the truth is that those perfect moments rarely, if ever, come about. That’s not to say we’re not going through an especially challenging period, but if you have access to finance and growth plans to action, why not just go for it? You might need to adjust your expectations or reign things in, but maybe, just maybe, the right time is now. And having seen how global events can have big consequences for small businesses, you could use this knowledge to invest in strategies that make your business more resilient to future challenges, whether that’s bringing your supply chains closer to home or investing in the latest technology to drive efficiency and get ahead of the competition.

You can power change

Instead of being at the mercy of uncertainty, why not use your entrepreneurial skills to change things for the better? Whether you make amazing coffee or help people find better deals, transform lives or just make someone’s life a little bit easier with a nifty solution, your business has the power to help others cope with challenging times. Raising finance can help to grow your business and reach even more people.

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UK Finance Reports a Shift in Lending Needs for SMEs as Caution Rises

UK Finance today releases its latest Business Finance Review which reports on the finance needs of small and medium-sized enterprises (SMEs).

Our latest review shows the expected slowdown in lending to SMEs following a reduction in applications for finance – particularly loans – in the previous quarter. SMEs’ demand for finance continues to be muted this year as they become more cautious because of the uncertain year ahead.

Gross lending

The figures from Q3 showed a continued softening in applications for finance from SMEs. Overdraft applications continued to trend up in the third quarter, but demand for loans fell.

Gross lending through loans and overdrafts to SMEs edged down to £4.5 billion from £5.1 billion in the previous quarter. In London, this represents the second quarter of declining lending values. The South West also saw a marked drop which could be due to the decline in finance applications from the agricultural sector, which is highly represented in the region. For other regions of the UK, lending remains stable and similar to pre-pandemic levels.

Meanwhile, overdraft applications represented the highest volume of applications since Q1 2020. This points to cashflow management and working capital requirements rather than business development.

Invoice finance and asset based lending (IF/ABL)

IF/ABL advances continued to grow and have now surpassed those reported in 2020 Q1, approaching the levels seen in 2018/19. There have now been nine consecutive quarters of growth, with advances at the close of Q3 2022 standing at almost £22 billion.

Data shows that there was strong growth in the number of the clients that are supported, with total client sales up 14 per cent. IF/ABL business continued to have access to funding in existing facilities.

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Deposits

We continue to see relatively modest changes in the aggregate picture across SME cash deposits.

At the end of Q3 total deposits fell by just under one per cent compared with three months previous, and by two per cent relative to the same period a year ago. This does however vary by sector. There has been a somewhat larger drop off in deposits in accommodation and food services, and health and social care. In contrast, cash deposits were higher in construction and real estate.

Source: UK Finance

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89% of SMEs intending to borrow over the next year to help them stay afloat

Demand from SMEs for lending is set to increase in the next 12 months, as 89% of businesses look to borrow to stay afloat, cover overheads or refinance existing debt.

That’s according to a recent survey from Allica Bank, which polled 150 established businesses (those with 10-100 employees) on their outlook for 2023 – a year that looks set to be dogged by recession, inflation and rising interest rates. More than two in five (43%) said they will need to borrow simply to survive, while nearly the same proportion (37%) are doing so to refinance existing debt.

It follows the British Business Bank reporting that while total debt held by SMEs reached new highs during the pandemic in 2020, loan repayments have been becoming a smaller share of business cashflows as turnovers have started to recover.

Allica Bank claims that the lack of information available to businesses about financial products makes this trend especially concerning, with 10% of respondents saying they needed more clarity about borrowing and 17% saying they wanted a greater selection of loan products to choose from.

The bank says this could lead to a growing number of businesses becoming over-leveraged, or missing opportunities to support growth. Recessions often lead to a higher proportion of defaults on business loans, while the Coronavirus Business Interruption Loans (CBILS) is already seeing an 8% default rate, amounting to over £6 billion, according to the government’s latest report.

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Conrad Ford, Chief Product Officer at Allica Bank, says it’s vital for the UK economy that businesses are made aware of the products available to them and get the expert attention they deserve: “It’s the responsibility of banks to give businesses the best chance of surviving and thriving through this recession by ensuring they can make informed choices.

“This needs to be backed up with fast and clear responses to loan applications, so that businesses aren’t waiting weeks for an answer. While banks should actually look individually at each application and assess each business on their own merits and opportunities.

“Fewer and fewer banks still offer their customers a proper relationship manager – someone that can walk business owners through their available options and help them make an application. At Allica Bank, we make relationship managers a core part of our offering for our business customers because we know how valuable their expertise can be. Especially as the economy is expected to enter recession.

“We also recommend businesses consider speaking to their accountant or a commercial finance broker for support when looking at their finance options.”

By James Cook

Source: Business Leader

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More than 3 million of UK SMEs are unable to grow without funding

The majority of small and medium-sized enterprises (SMEs) in the UK require funding to overcome cashflow issues and pursue their growth plans, new research from Channel Capital (Channel) has found.

The UK-based, FCA-regulated asset manager commissioned a survey of 506 senior leaders within UK SMEs. It found that 59% of businesses currently need funding to ease day-to-day cashflow issues – that equates to 3.29 million SMEs, while more than two-thirds (68% or 3.80 million) need funding to grow.

There are 5.6 million SMEs in the UK, accounting for 99.9% of the business population as well as three fifths of the employment and around half of turnover in the UK private sector.

Despite the demand for an injection of capital, Channel’s research showed that SMEs are struggling to find suitable lenders. Just 51% said it is ‘easy’ or ‘very easy’ to find an SME loan.

Just over half (54%) of UK SMEs think big banks are too slow in assessing business loan applications, with 47% saying high street banks are reticent to lend to smaller businesses.

Almost two in three (65%) respondents said they are open to using alternate lenders for SME finance options, compared to 31% who said they would only trust a high street bank for a business loan.

Elsewhere, Channel’s study revealed that, of those SMEs which have applied for a business loan in the past, a fifth (20%) thought the process was ‘difficult’ or ‘very difficult’.

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Walter Gontarek, CEO of Channel, said, “From Brexit to the pandemic; the cost-of-living crisis to government fiscal U-turns, the past five years have been hugely challenging for SMEs – and financial planning is extremely difficult in the face of so much political and economic uncertainty, as our research has shown.

“Millions of SMEs need funding to soothe cashflow headaches or, crucially, to pursue growth strategies. Yet unfortunately, accessing that finance is notoriously difficult. Our study highlights the poor experience SMEs often have with big banks’ reluctance to lend, not to mention complex and time-consuming application processes with no guarantee of approval.”

Ion Fratiloiu, CCO of Channel, added, “Accounting for three-fifths of employment and half the turnover in the UK private sector, we must better support SMEs with easier access to finance.

“The SME loan market needs to undergo the same level of disruption as consumer loans have, with technology-led and online lenders coming to the fore so borrowers can enjoy the benefits of greater choice, speed, and transparency.

“Positively, our research shows SME leaders are open to working with alternate lenders, including digital lenders, so we’re confident that improving access to finance will open up many new opportunities to these businesses.”

Source: London Loves Business

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Late payments costing UK small businesses £684 million a year

As inflation continues to increase, a new survey has revealed that late payments are costing small businesses £684 million each year. Using analysis from thousands of businesses based on revenue and expenses data, this is due to them being paid 5.8 days late on average.

Prepared by Accenture, with the support of Xero, the global small business platform, these findings underpin a new report: Crunch: Cash Flow challenges facing small businesses, Part II. The report aims to help small businesses and their advisors better understand ‘cash flow red flags’ – the early warning indicators that a small business is heading for cash flow trouble.

The report identified the following cash flow ‘red flags’:

Late payments: Almost half (49%) of invoices issued by small businesses were paid late, with 12% paid more than a month after they were due.
Expenses: Small business expenses rose by 18% in 2021 due to supply chain disruptions, price shocks to commodities like oil, and general inflation – a marked difference to 2020, when expenses actually declined by 1%.
Seasonal slowdowns: Amplified in sectors such as hospitality, where small businesses generate 28% of their annual revenues in summer, compared to 22% of their annual revenues in winter.
Alex von Schirmeister, Xero’s UK Managing Director, said: “Small businesses continue to show huge resilience in the face of soaring costs but our data consistently points to the damage caused by late payments. While it’s positive to see a new energy support package, the new Government must take the right action on this devastating issue.

“This isn’t ‘late payment’, it’s ‘unapproved debt’. It’s time to call it that and tackle it head on. This includes enforcing stricter penalties for the worst offenders, to provide a lifeline to an overlooked majority. Businesses should also look at the digital tools available which can also help with faster payment.”

In a separate Xero study*, 79 per cent of large UK businesses said that without their small business suppliers, their organisations would be more expensive to operate. But despite this acknowledgement, over half (55%) owned up to having paid a small business supplier later than the agreed payment terms in the last 12 months.

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Tackling cash flow ‘red flags’

The report recommends that small firms consider adopting online invoice payment options for faster payment; and work with their accountant to stay on top of government programmes that offer payment plans which help businesses smooth out their expenses.

“Late payments threaten owners’ ability to meet their own obligations – such as rent or wages,” said Rachael Powell, Chief Customer Officer, Xero. “Small firms and policy makers can send a clear message that late payments aren’t acceptable, and come together to develop policies and penalties for those who refuse to take the hint. If small businesses and their advisors can actively look out for these red flags in their financial data, they’ll find it easier to anticipate and avoid cash flow crunches.”

The report, including the insights and analysis contained within it, was prepared using Xero Small Business Insights data, publicly available data, and Accenture estimates for the purpose of informing and developing policies to support small businesses. It follows the launch of Part 1, released at Xerocon London in July.

Source: SME Web