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14 Feb 2023 / Invoice Finance

The road to recovery: Keeping viable businesses from going under

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As business insolvencies reach a 13-year high, we sit down with our Managing Director of Invoice Finance, Phil Chesham, to discuss the road to recovery and how alternative finance can be the key to preventing more viable businesses from going under in 2023.

Running a business is a challenge in itself

There’s no doubt that starting and running a business is no easy feat. It takes a great deal of effort, dedication, and hard work to make it a success. On top of the everyday challenges of running a business, 2022 gave firms high inflation, soaring costs, supply chain challenges and weakening consumer demand to contend with. This was on top of post pandemic recovery and the repayment of many Covid-19 support initiatives.

More and more firms are struggling to make ends meet, and unfortunately for many, these pressures have meant that insolvency has been the inevitable outcome of an unsustainable situation. The figures are staggering; insolvencies reached a 13-year high at the end of January and 22,000 businesses were forced to fold last year.

It’s more than just rising costs holding businesses back

Poor cash flow is not a new problem; it hasn’t arisen because of the rising cost of doing business, although it’s definitely made it worse. Issues such as delayed or late payments from customers have long acted as a key barrier for businesses, but this is a challenge that is only further compounded by the newer issue of rising overheads. Acting as a vicious cycle, the late payment culture sees one business owed thousands in outstanding invoices. They in-turn struggle to pay their own suppliers, and the domino effect continues forcing those suppliers to be without the cash in the bank to pay their own invoices, and on and on the problem continues.

The significance and scale of this is not something that can be easily ignored. From conducting our own research, we’ve seen businesses owed up to £250,000 in late payments and up to 70% waiting longer than 60 days to be paid. That’s too many businesses in need of working capital, headroom, and a freedom to grow. Across the UK, this figure is much more bleak with estimations that late payments amount to £23.4 billion. Let’s just think about the potential those billions of pounds could unlock if it was paid to those businesses on time.

It’s time to think about more than just survival

22,000 businesses going under in 2023 is a worrying statistic but what we need to consider is which of these insolvencies could have been prevented if firms had the right financial support in place. And we’re not necessarily talking simply about survival here. The role of alternative finance is to help businesses achieve their growth potential, to help them access working capital and bring forward investment plans. Yes, an injection of finance can help pay the bills but it can also enable businesses to grow their capabilities, and expand their earning potential. It can take them from simply surviving to thriving. Having a healthy margin of working capital in a business can allow a business to invest in its people, innovate through new technologies, adapt and develop products and services, and break into new markets. Businesses that prosper are businesses that adapt.

Unlocking capital through invoice finance

A business seeking finance for growth can look no further than its own revenue, and this is the beauty of invoice finance. There is a misconception that invoice finance is a failsafe when cash is low - a solution to unpaid invoices that helps make ends meet. It does do this, but that only scratches the surface of its potential. With an invoice finance facility in place, a business ensures it has enough cash reserves to pay the bills while building in extra headroom to see through investment plans. In this sense, it can be an extremely valuable tool for growth.

Of course, there is an argument that financial services like invoice finance simply shouldn’t be needed. If all invoices were paid on time, then businesses would have greater stability, more control over their cashflow, and they would be able to forecast investments and growth plans. In January 2021, the Government reformed its Prompt Payment Code with that exact aim in mind, however just two years later it has made little difference and there is currently another Government review into late payment to help address the billions owed to small businesses. Any step to address this issue is a step in the right direction, but while this debate rumbles on, the challenges remain for businesses. We believe in providing the solution, to ensure that viable businesses are given the best chance to survive and thrive.

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