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  • Writer's picture Cashbook Finance


Cash flow can mean the difference between life and death for any business – but none more than for SMEs. Research from Hitachi Capital UK’s report, Late Payments: The Cost to Business and Our Health, found that late payments are costing the UK’s 5.9m small to medium businesses at least £51.5 billion a year, begging the question, how can they manage their cash flow better?

Cash flow and SMEs

Poor cash flow not only stops a business from operating properly, but it also damages its reputation if employers are unable to pay their suppliers and staff.

Here is a snapshot from Hitachi Capital’s research of how cash flow problems affected the SME community in 2019:

● 31% experienced late payments

● 1.9m employees weren’t paid on-time

● 57% spent one day a week chasing late payments

● 40% used their own money to close cash flow gaps caused by late payments

What causes cash flow problems?

There are many reasons why cash flow problems occur in a business. From a poor sales performance to a general lack of financial management, cash flow issues in any form can threaten a business’s very existence.

With SMEs more directly affected by cash flow issues than other sized businesses, it’s no wonder that these concerns keep many owners up at night.

To end this vicious cycle, it’s vital that SME owners understand what their options are to improve their cash flow, and their business’s performance going forward.

Late payments and cash flow

Late payments are one of the most serious causes of cash flow problems in a business. This is because some businesses can expect to wait up to 90 days for clients and customers to pay their outstanding invoices.

With many businesses selling to wholesalers and retailers on credit, (where the customer doesn’t have to pay the invoice immediately), the delays can stall a business’s cash flow, sometimes terminally.

These delays have a knock-on effect when it comes to a business’s operations, meaning the business cannot make any investments until the customer or customers pay their outstanding balance first.

How invoice financing can help

Invoice financing provides a way for businesses to borrow money against the outstanding amounts due from customers, releasing tied up cash that can be used to help run and grow the business.

Businesses pay a percentage of the owed invoice to the finance lender as a service fee in addition to a finance fee, which is calculated as a percentage of the amount of money lent.

In return, the business can unlock as much as 90% of the value of their unpaid invoices, allowing them to get on with their daily operations as if the customer had paid on time. Once the customer pays the invoice in full, the business gets the remaining 10% of the value.

Lenders can even help with debt chasing on the business’s behalf if required.

Invoice discounting

For businesses that don’t want their customers to know they are using invoice finance, many lenders offer a confidential option.

Also known as invoice discounting, businesses continue to manage their client accounts and remain in charge of their credit control processes. This means they chase the late payments themselves, maintaining close relationships with their customers, who remain unaware of the lender’s involvement.

The perks of invoice financing

With chasing invoices outsourced to a lender, business owners can concentrate on the day-to-day operations of their business, letting them focus on leadership and growth.

Things to consider

While invoice financing provides an effective way for businesses to remedy cash flow problems brought about by late payments, businesses not going for the confidential option must consider how they’re going to manage their ongoing relationships with their customers.

When a third party is chasing for payments on their behalf, businesses must think about how they will maintain a good working relationship with customers, especially if the business in question is offering them a long-term service.

Once a business is happy with the terms and conditions of invoice financing from a particular lender, there really isn’t much stopping them from unlocking the value of their invoices and steadying their cash flow.


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