We’re proud to celebrate Invoice Finance at The Growth Finance Awards

Invoice Finance is the Solution to the “Late Payment Crisis” facing SMEs

Dealing with endless late payments is one of the greatest challenges facing #SMEs and #startups. It’ll be a familiar story to you if you’ve waited weeks or months to receive payment from a customer. The resulting cash shortages can weigh heavily. They can also prove terminal for many small businesses.

This is where Invoice Finance shows its true value. SMEs can use unpaid invoices as security for funding, giving them quick access to a percentage of that invoice's value. This guarantees essential cashflow while waiting for the invoice to be paid. Invoice Finance providers play a vital role in supporting the growth of many small businesses. That’s why we’re delighted to celebrate them again at the #GrowthFinanceAwards22

How damaging are late payments to SMEs?

Last year, research from Know-it estimated that UK SMEs were chasing approximately ￡50billion in late payments. That equates to five outstanding invoices per firm. In turn, the financial services company, Novuna, suggests that these late payments are then costing SMEs more than ￡50billon a year to recover. Those figures are shocking, and obviously take a real toll on small businesses in the UK.

Robert Gordon, the CEO of Novuna, says that the late payment culture, that pervades the UK economy, is down to an imbalance of power between clients and suppliers. “It’s often driven by larger players abusing their position.”?

He believes that if left unchecked it’ll mean: “huge numbers of businesses will continue to experience cash flow pressures at a time of wider economic uncertainty.”

That sentiment is further echoed by the Federation of Small Businesses (FSB) which said that more than 440,000 small firms could be forced out of business by what it called “the late payment crisis”.?

"Many small firms could be forced out of business by a 'late payment' crisis" - Federation of Small Businesses

Their survey, from January 2022, suggests that almost a third of small businesses (30%) had seen late payments increase in Q4 2021, with at least 8% warning that the problem is so bad that it’s threatening the viability of their business.

The FSB have done some great work highlighting chronic late payments with their #FairPayFairPlay campaign but they say that the UK Government must tackle the issue urgently before it’s too late for many businesses.

So that gives you a sense of the scale of the problem. But how can #InvoiceFinance help?

How Invoice Finance works

Invoice Finance is a vital tool in minimising the negative impact of late payments. It helps businesses get paid promptly, and allows small firms to free up cash and focus on developing their businesses.

Individual invoice finance products can vary, but in general, a company sells one or more of its accounts receivable to a third party for a fee. Often the provider will pay the majority of the invoice to the business upfront - up to around 90% of its value - and then provide the remainder (minus fees) once the payer has paid.?

Traditionally it’s offered by banks and their commercial finance arms, such as Metro Bank, Bibby Financial Services, HSBC, Lloyds, Novuna. However, recent technological advances mean it’s now quicker and easier for invoice finance providers to make decisions about which companies they can support, and so a number of new players have entered the fast-growing sector.

Invoice Finance is Thriving

The invoice finance industry has seen the significant growth of companies like MarketFinance, formerly MarketInvoice. Beginning life in 2011 as an online platform linking investors to companies needing invoice financing. They’ve since developed their own invoice finance products and have collectively helped SMEs with more than ￡2bn worth of funding.

Some of the biggest financial lenders have also innovated in the space.This year we’ve seen Mastercard launch its new business-to-business (B2B) payment solution in the UK. Mastercard Track Card to Account Transfer allows businesses to use their commercial card programme to make payments to any supplier, regardless of whether the supplier accepts card payments.?

Kelly Devine, Division President, Mastercard UK & Ireland, says that solutions like their Mastercard Track Card to Account Transfer solution will put an end: “to the operational and financial challenges created by inefficient processes in B2B payments.” She also says that particularly in these difficult times:

it’s critically important for businesses to have flexible payment options to smooth cash flow throughout the supply chain.” - Kelly Devine, Mastercard UK & Ireland

Recognition at the Growth Finance Awards

We were really proud to celebrate the amazing community of invoice finance lenders at our first #GrowthFinanceAwards.

Ultimate Finance won the top prize in 2019, for their quick, flexible, and customer-focused invoice finance products. Since then it’s remained an integral part of their business.?

Their Chief Marketing Officer - Yvonne Balfour - told me that she’s encouraged by the signs that client invoicing is returning to pre-pandemic levels but there’s still more lenders can do to help:

“There’s a significant need in the UK economy for capital to support growing SMEs, and we think that invoice finance is a great source of funds to meet that need in a sustainable way. Innovation in the space has always been a priority for us, and that’s why we were so delighted to be recognised as the “Best Invoice Finance Provider” at the Growth Finance Awards in 2019." Yvonne Balfour, Ultimate Finance

Satago were runners-up in 2019. Their approach to invoice finance is to offer single invoice support, or the full version which automatically finances every one of your business’ invoices. The judges commended their flexible offering.?

Our ‘one to watch’ in 2019 was Banking Circle which specialises in offering invoice finance to the merchants of fintech companies. They offer an Instant settlement’ facility which enables merchants to get instant access to cash while they wait for payments which often take up to 90 days.??

Invoice Finance products are an essential part of the funding mix for SMEs. By freeing up working capital it allows them to focus on what’s important: growing their businesses, creating jobs, and contributing to the economy at large. We were so impressed with the stories of innovation and accessibility from all the ‘Best Invoice Finance Provider’ entrants from 2019. We can’t wait to read more of them this year.