UK businesses are increasingly turning away from mainstream bank finance to deal with issues such as late payment, cash flow uncertainty and business expansion, according to the quarterly Business Barometer survey by Close Brothers Invoice Finance. Lack of cash flow is one of the main barriers to business expansion and the survey showed that companies are willing to explore non-traditional avenues to obtain financing, including non-bank finance providers. The study also shows that a large number of small and medium-sized enterprises (SMEs) are losing significant sums of revenue due to late and non-payment of invoices.

The survey, conducted in August last year, found that UK SMEs took the following approaches to financing business needs and late payments:

• 23 per cent of firms usually use a bank loan;
• 14 per cent planned to use an overdraft to finance;
• more than a third said they would turn to invoice finance to help exploit growth opportunities, take on new staff, or invest in new technology;
• 29 per cent of SMEs said that they were adversely affected by late payments;
• 17 per cent firms complained that overdue invoices resulted in them having to rein in what they described as “necessary spending”.

Hidden risk of unpaid invoices 

And dealing with late payers is a huge drain on resources for SMEs. The report found that a quarter of firms spend a week or more every month chasing overdue invoices, while 30 per cent spend at least two days a month doing so. In some cases, it's better for businesses to write-off unpaid invoices rather than continue to chase for payment. The report suggests that just under half of SMEs affected by late payments had to write off between 1 and 10 per cent of their annual turnover. But almost a fifth – 19 per cent – of companies said that they lost between 10 and 25 per cent of their yearly revenues because of unpaid invoices.