Half of SMEs are getting paid after 72 days
INDUSTRY INSIGHTS BY ALL PURPOSE LOANS
Around 50% of small and medium size businesses (SMEs) in the UK are getting paid around “72 days after their work has been completed”, according to research from BACS Payment Schemes Limited research.
The result is that more than one-third of start-ups and SMEs are suffering with cash flow issues, with a total of £26 billion owed to those businesses who desperately need it to stay afloat, according to the research. This is particularly relevant to product manufacturers across retail, fashion, food and electronics.
Karen Holden, A City Law Firm, explains: “For small businesses to be working with large companies and operators is a dream come true, but after paying their overheads and staff costs, it adds a lot of financial pressure that they are only paid on delivery. If you haven’t secured a regular monthly cash flow, then you need a strong contingency plan.”
What options are available to SMEs?
The traditional approach is to use your previous savings or earnings as a buffer for future costs. For some firms this could be previous investment from angels, venture capital (VCs), partner companies or even parents or friends.
Many will turn to business loans, which can offer affordable rates from as low as 6% APR if you have been trading for a minimum of 24 months and the company has a good credit record. This can be in the form of SME loans from up to £1 million or using things like revolving credit facilities and invoice factoring to help you receive money upfront and pay interest as and when you need it.
Some business lenders will require some form of security including collateral against your office space or inventory, whilst others may require business guarantees or a copy of your invoice ledger as proof of your orders.
Business grants are also available from government sources providing that you are doing good for the economy or environment including helping employment, sustainability or health.
Improving payment terms
Whilst larger companies have standard payment terms and are often not easy to negotiate with, there are some other methods that small and medium firms can deploy. This includes asking for deposits upfront or negotiating payment to be paid within a certain date or subject to penalty.
Dealing directly with the accounts team of the company can also improve communication and move things along, rather than hoping that invoices and information is passed on successfully through another individual.
In addition, using other forms of payment and invoice software such as Xero and Stripe can help with automated follow ups and also giving the client the opportunity to pay online or via credit card, rather than make a manual BACS payment.
Great to see FinTech Futures highlighting a very real issue for all companies, but especially SMEs.
Getting paid on time can be the difference for firms between success and failure. We all know examples of SMEs who’ve gone to the wall, not because their businesses were flawed, but because payment delays left them without the working capital they needed to function.
Cashflow is the lifeblood of any business and, especially for SMEs, debt finance can be restricted and expensive.
Conversely, for their large corporate customers, receiving, processing, approving and paying hundreds of thousands of invoices every year, accurately and in a timely fashion can be tough- even where there’s a will to support their supply chains. But the larger the customer, the more important their speed of payment.
SMEs who are supplying Taulia’s customers are receiving payment on their invoices not just on time, but well ahead of their contractual term. These suppliers can access this liquidity at rates that are based on their buyer’s creditworthiness, which in the case of Taulia’s global, multinational and public sector client base, often means a fraction of the rates charged by other options.
Supporting SMEs is critical to our customers and those in the public sector are no exception- for example we’re helping thousands of pharmacies nationwide get access to payments from the NHS in advance of due date, by accelerating more than £1bn of payments annually, in that sector alone and our framework with Crown Commercial Service is contributing to Taulia being rolled out across the public sector.
We believe in creating a world where every business thrives by liberating cash.
Awareness of this need and opportunity is increasing amongst large corporates and public sector buyers- SMEs should ask their customers whether they have a Taulia programme in place.