Late payments can fatally affect your company’s long term prospects. Learn how to safeguard your company from this growing risk in this guide by First Oak Capital.
As a small business owner, you know that maintaining a positive cash flow is essential. But striking a balance between maintaining reliable business-client relationships and pursuing the payments you are owed is never easy. And, as UK SMEs continue to take the brunt of today’s crisis and raging inflation, cash flow issues sadly remain one of the main reasons for business failure.
Luckily, with the business finance experts at First Oak Capital, you can discover a wide range of tools to help you keep your business afloat and thriving. Here’s what you need to know.
Late Payments: A Rising Challenge for SME
According to recent surveys by Sage it was found that 40% of UK SMEs are consistently paid late, often with an average outstanding balance of over £22,000. But while today small businesses deal with around 17% of their invoices paid late, this percentage is only expected to increase due to the skyrocketing inflation and other business pressures.
Late payments are said to affect smaller businesses with lower resources, three times more than larger ones and over recent years the number of payment defaults experienced by SMEs has increased at a massive 20% year on year.
Even more worryingly, reports published by Xero show that the UK’s small business economy loses a whopping £684m per year on late payments, and organisations often have to wait an average of 30.6 days to see their invoices paid in full.
Undeniably, these figures paint a bleak picture for UK SMEs looking to keep their cash flow afloat. However, with the right financial tools, you can keep your business running smoothly while waiting for your payments to come through.
How Invoice Finance Helps Your Business
If you are invoicing other companies on a regular basis, you probably have experience of clients requesting delayed payment and longer credit terms, which can cause you to wait up to 120 days to receive payment for your goods and services. Suppliers of large corporate customers are especially vulnerable when competing for valuable contracts that often demand lengthy credit terms that exclude companies that cannot afford to wait months for payment.
But while this might be a standard practice, late payments can compromise your business’s cash flow, delay production or service commitments, and impact your relationship with other clients.
That’s where invoice finance can help. With First Oak Capital’s invoice finance products, you can borrow against your outstanding invoices, which allows you to access the funds needed to keep your business running while waiting for payment.
Here are just some of the benefits of cash flow products:
Keeping Your Operations Running Smoothly
Late payments can add pressure to your operations, causing you to struggle to pay your suppliers, utilities, and employees. In turn, this can cause a cascade of negative consequences, including delayed production, inhibited operations, and a reduction in income.
With invoice financing options, you can obtain the necessary funds to invest in your business and keep your operations running smoothly, all of this with the peace of mind that you will receive the funds you are owed at the end of the 120-day period.
Improving Client Relationships
Small business loans and cash flow products give you enough financial leeway to avoid having to urgently pursue payments. In turn, this can help you improve your business-client relationships and build connections of trust over time.
Safeguarding Positive Cash Flow
Balancing your cash flow is critical to ensure the present and future feasibility of your business. However, cash flow movements are often rapid, making it often too easy for small businesses to find themselves short of resources. Luckily, invoice financing and cash flow products are designed to be short-term solutions to keep your cash flow in the black.
Unexpected VAT bill
Value Added Tax (VAT) is a tax levied on the value added to goods and services in the United Kingdom. Businesses in the UK are required to register for VAT if their annual turnover is above a certain threshold. Once registered, businesses are required to charge VAT on their products and services and to file regular VAT returns with HM Revenue & Customs (HMRC). Failing to pay VAT can have severe consequences for a business, including fines and legal action. This is why VAT loans have become increasingly popular among UK companies as a way to finance their VAT payments.
Partnering With a Small Business Loan Specialist
Small business financing specialists such as the team at First Oak Capital can help you find the right cash flow products for your business’s needs. Get in touch with our team at 0800 066 3677 or get a quote to get started today!
