Cash & Liquidity ManagementGovernment must rescue treasuries facing late payments, says FSB

Government must rescue treasuries facing late payments, says FSB

Industry body pledges late payments must be dealt with by the government as crisis hits most UK SMEs

The Federation of Small Businesses (FSB) has called for the government to support UK SMEs dealing with late payments – an added burden that could trigger insolvencies for small businesses recovering post-lockdown.

“Treasurers aren’t looking too healthy – most small businesses have had a couple of months without trading, and if their invoices are being held or frozen on top of that, then they are in a very precarious situation,” says Daniel Bellis, senior policy advisor at the FSB.

“The biggest thing that government can do now to help SMEs, in these circumstances, is actually to step in and own the debt.”

The Small Business Commissioner (SBC) says the government has already provided significant support to SMEs with financial difficulties due to the pandemic.

“The government has provided unprecedented support for small businesses; they’ve essentially provided a lifeline for many small businesses experiencing challenges with cash flow. They are doing as much as they can – they are doing a lot to support SMEs,” says Manveer Mann, spokesperson at the SBC.

Research conducted by MarketFinance reveals that UK SMEs are owed £133bn by clients since lockdown whilst 85 percent of business owners have felt, over the past three months, a sense of loss of control.

“The options for small businesses at the moment are relatively limited, especially if you want to try and be able to maintain that relationship between yourself and your customer,” says Bellis.

Maintaining customer relationships will be the biggest challenge for those SMEs chasing late payments, according to Bellis.

“Gaining a point of contact within the company who owes them money and getting in touch with the right person who can help them to resolve the problem,” will be an immense difficulty says Mann.

Bellis advises businesses against reaching out to banks for financial support.

“Whenever we’ve seen small businesses go to banks, it turns in the form of invoice financing, which is never quite as advantageous. Although there are ways banks can help, most of the time you come out worse.”

Small business owners often use their funds to bridge the gap of late payments instead of seeking finance, according to Mann – yet these late payments prevent SMEs from scaling up and investing further.

Unlike large corporations, SMEs lack resource, meaning they are prone to face late payments, which creates an uneven playing field.

“The person running an SME isn’t just the chief executive, they are also the bookmaker, half the time the candlestick maker, the person who interacts with the customer, the person doing the marketing; they haven’t got time to be the finance department chasing late payments,” says Bellis.

“For large businesses, they have big finance departments meaning they can spend all day chasing these. They’ve got legal teams as well but can put together letters to recoup any interest lost. SMEs simply don’t have the tools to be able to compete on that level, which is why they tend to be the victims of late payment.”

The financial impact of late payments on these small businesses could generate insolvencies, particularly as the end of government support will lead to a greater accumulation of debt.

“There is a risk of insolvency caused by late payments,” he says. “Everything seems to be coming together in a perfect storm of debt. Small businesses are coming out of this hibernation period that enforced them into a very hostile environment.”

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