How Invoice Finance solutions are opening up for small firms

Smaller firms are hit particularly hard by late payments, but changes in regulation offer small businesses a new way to face the challenges

About the author

Richard Evans
Richard Evans Head of Broker Sales, Lloyds Banking Group

When statements are prepared for financial year end, the impact of late payments on business’ cash flow will be plain to see. This impact is likely to be considerable: Lloyds Bank’s Working Capital Index revealed that customer payment times were a challenge for companies last year, with six times as many firms reporting longer rather than shorter payment times. Sector-wise, the Index also found that more than a third of construction firms were being paid later and were forecasting longer cash collection periods.

However, as inflation squeezes margins resulting in a slowdown in payments to suppliers, the impact is falling disproportionately on smaller firms. The Index shows that last year, four times as many small businesses reported longer payment times from customers compared to larger firms. In real terms, the average small business now takes ten days longer than a larger firm to collect the cash it’s owed.

This in turn impacts working capital, with the average small company tying up cash in working capital 16 days longer than a large company.

New regulations

A solution for businesses facing these challenges is to raise money from unpaid invoices via Invoice Finance. However, up until recently, many businesses looking for financing to fill the gap between issuing invoices and receiving payment were prevented from making use of this service because of contract restrictions on assigning invoices. In fact, the government estimates that the 40,000 firms in the UK using Invoice Finance represent only around 10% of the number of businesses that could potentially make use of it.

Now, thanks to changes in regulations, Invoice Finance is becoming more of an option for smaller companies. The Business Contract Terms (Assignment of Receivables) 2018 regulations state that restrictive business contracts that prevent the assignment of invoices will no longer have any effect. The government says this should make the business finance market more accessible and provide entrepreneurs with cheaper, more readily available finance. The regulations are now in force and apply to contracts entered into on or after 31st December 2018.

Benefits of Invoice Finance for smaller businesses

Invoice Finance with Bank of Scotland is highly scalable. As businesses grow and turnover increases, it enables firms to access the funds tied up in invoices to grow their assets, stock and infrastructure. It also enables businesses to access funding quickly: Invoice Finance can release up to 90% of an invoice’s value, often within 24-hours helping to improve cash flow, boost working capital and ensure the smooth running of a company. It is also an option that is available for growing firms – for example, a turnover of £50,000 is needed to be eligible for our Factoring solution.

Bank of Scotland’s Invoice Finance service offers simple and transparent pricing. It can be structured to help your clients meet their specific needs, both now and in the future. Our restructured business under the leadership of Richard Evans, head of broker sales nationally, includes a team of regionally-based dedicated Invoice Finance broker managers who work closely with business development managers, to help provide you with a tailored service. For smaller as well as larger clients, it could now provide a welcome release from late payments difficulties and give them the room they need to grow.

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