By Gary Cain, Director of Reach Commercial Finance – the bespoke brokerage division of Leonard Curtis
In recent years, alternative finance has become an attractive option for small businesses that need to plug a temporary cashflow hole, such as late invoice payment.
It’s a topic that’s back in the news following the recent publication of figures from Pay.UK – the retail payment authority – that show that UK SMEs are currently waiting on £23.4billion of late payments, an increase of £10billion in the last 12 months. The average amount due to each now stands at £25,000 – up from £17,000 the year before – and half of those chasing payments are doing so at a total cost of £4.4billion.
It’s these late payments – and their impact on cashflow – that are reported to kill off 50,000 small businesses a year, at an estimated cost of £2.5billion to the UK economy. Going to court is rarely seen as an option, as legal fees are more often than not unaffordable, and the process of doing so is complex too.
As it’s an issue encountered by a staggering number of SMEs, demand for our services in this area is high. Over the last three years alone, we’ve completed over 500 transactions and raised more than £250million in finance for UK SME clients – many of these were experiencing difficulties due to delayed invoice payments, which was damaging their cashflow and their ability to grow, expand and meet their liabilities.
With such startling statistics, it’s important to make SME owners – and their professional advisers – aware of the support and funding that’s available to them through alternative finance. It really can save and help grow a business.
Late payment consequences are serious – commercially and personally. As well as undermining the emotional wellbeing of SME owners, it can also lead to paying their own suppliers late (24%), relying on overdrafts (35%), cutting their own salaries to keep cash in their business (24%), difficulties paying their own staff on time (12%) and struggling to pay business bills (13%).
The benefits of alternative lending
In comparison to the lengthy process of applying for a bank loan, the alternative lenders that we work with and trust can often approve a loan within 48 hours, with some able to deposit it the same day.
Lending criteria of alternative lenders also tends to be a little more flexible and they’ll consider funding companies with irregular cash flow. As long as a business has consistent revenues, and it can demonstrate its ability to meet its repayment obligations, we have an excellent chance of securing the necessary funding.
This swift turnaround is also necessary for small businesses that require a short-term solution to all kinds of unexpected cash flow issues. Our nationwide network and reach mean that we’re quickly able to match client to funder.
The alternative cash flow solutions that we can provide
There are a number of ways that businesses can deal with late payment, the most popular of which is invoice finance. Key benefits are that it provides the money they need, frees up time, and in many cases, ensures they don’t get into debt as a result.
The two main invoice finance products we offer to help SMEs manage late payments include invoice discounting and factoring although we offer many more business funding solutions for SMEs.
Both of our invoice finance solutions provide up to 95% of the money owed. Then, when the debtor has paid, the funder will release the rest of the funds, minus their fee.
Each product differs slightly, and we always ensure that the option we secure best meets each client’s circumstances.
Invoice discounting provides an advance against invoices before the customer pays. It offers control and flexibility to continue to deal with your clients when chasing payments. For larger companies in particular, this can be beneficial as they may not want to advertise that they are factoring their invoices and they are likely to want to keep up their current levels of customer service.
Invoice factoring is another method of plugging the financial gaps caused by late payments so that monthly payments can be met. It’s different from invoice discounting as client customers pay the factoring company direct, as it is managing the ledger and chasing payments on their behalf.
Factoring is an effective route for those SMEs who cannot afford to employ a dedicated credit controller, or similar, to chase late payment.
To find out more about our approach to securing lending for SMEs and how we can support your business – or clients through late payment difficulties, click here or call 0800 993 0193.
For client and partner lender testimonials, click here.
Reach Commercial Finance is an independent financial brokerage with a wide range of long-standing experience in helping limited companies and corporate entities secure funding.