Late payment crisis for thousands of small businesses

As 2022 begins, a late payment crisis is affecting thousands of small businesses, according to a survey by the Federation of Small Businesses (FSB), citing an increase in admin, new import and export checks, pandemic pressures, and ‘poor payment practices’ as contributing factors. With small businesses waiting longer to get paid, many are feeling the pinch.

Increase in costs and late incoming payments

While small businesses can be under pressure to pay their suppliers and creditors on time, the survey found those businesses are often waiting for incoming payments themselves. Out of the over 1,200 businesses surveyed, about a third said they’d felt the effects of this late payment crisis.

Having to pay outgoing invoices while waiting on incoming ones can lead to a business having an imbalanced cash flow, which, left unchecked, could drive the company into insolvency.

Several economic circumstances have conspired to make things even more difficult for businesses still feeling the pinch from the last difficult decade. New charges and regulations thanks to Brexit, skyrocketing fuel costs, and of course, the detrimental impact of the worldwide coronavirus pandemic, have left businesses across many sectors in a sorry state.

While the government has provided financial support for businesses that might otherwise have become insolvent, it hasn’t completely negated the problems the late payment crisis has triggered.

Is there help for small businesses?

While the main government support schemes for affected businesses have ended, there are still options for those struggling to repay their debts as and when they fall due, whether or not it’s coronavirus related.

Some government support is available following the Omicron variant’s spread through Europe, with a £1billion business support fund predominantly for businesses in the hospitality and leisure sectors.

What other help is available?

Outside government support, other options are available if your business is in financial difficulty.

Commercial finance options

If the late payment crisis has caused problems for your business and given it an imbalanced cash flow, you may benefit from one of several commercial finance options, and which one is best for you will depend on your company’s circumstances.

• Invoice finance
  Invoice finance is one of the most popular commercial finance options. A factoring company lends the business a percentage of their unpaid invoices. Once paid in full, the company takes a fee then releases the remaining amount. Invoice finance can be especially useful for companies suffering from an imbalanced cash flow due to late payments.
  More on invoice finance

Insolvency arrangements

While often associated with failed companies closing, insolvency arrangements can be used to help companies recover from cash flow issues and emerge stronger. We can offer insolvency arrangements depending on your circumstances.

• Repaying the debt, monthly
  For more significant amounts of debt that risks pushing an otherwise viable company into insolvency, a formal repayment arrangement between you and your unsecured creditors, repaying an affordable amount every month, could be a suitable solution. These are called Company Voluntary Arrangements (CVA) and normally last five years.
  More on Company Voluntary Arrangements
  A similar arrangement is available for sole traders and individuals and is called an Individual Voluntary Arrangement (IVA).
  If the majority of your business’ debt is to HM Revenue & Customs (HMRC), you can negotiate a Time to Pay Arrangement (TTP), in which you repay your liabilities to HMRC in affordable instalments.
• Restructuring the company
  If more substantial restructuring is required to keep a company alive, then administration could be the way forward. In administration, one of our licensed and regulated insolvency practitioners takes control of the company, making the necessary changes to make it appealing to potential buyers.
  More on administration
• Closing the company
  Despite your best efforts, sometimes the company’s debts can be of such a level that it can be best to close it through a voluntary liquidation. A Creditors Voluntary Liquidation (CVL) closes the company in an orderly manner. The directors control the entry into liquidation, which would not occur if a creditor were to force the company into compulsory liquidation.
  More on Creditors Voluntary Liquidation

Summary

Thousands of small businesses could be feeling the pinch from a combination of factors as 2022 begins, with what the Federation of Small Businesses (FSB) cite as a ‘late payment crisis’ being the latest strain on those lucky enough to have survived the pandemic so far. Businesses are finding they have imbalanced cash flows caused by late incoming invoices while still having to repay their outgoing ones.

Fortunately, there are solutions available to help your business if it’s struggling with late payments. We have a range of financial solutions, such as invoice finance, to help your business’ cash flow problems. Depending on your circumstances, your business’ options could include repaying its unsecured debt in affordable monthly instalments, restructuring a company to make it appealing to buyers, or closing the company and allowing you to move on.

However you decide to combat your business’ debt, you mustn’t bury your head in the sand – things will only worsen. Get in touch with our initial advice team for free impartial and non-obligatory advice and limit the damage.