From recent research, ABFA has announced that SMEs are hit twice by delays in payment when working on subcontracted projects for local authorities, as they have to wait for both the council and the main contractor to pass on the funds. 

Research conducted by ABFA found that businesses with a turnover under £1 million have to wait, on average, an excessive 71 days to receive payment. 

Commenting on the results, Jeff Longhurst, CEO of ABFA, said: “Smaller businesses brought in as subcontractors on projects for local councils are particularly vulnerable to delays in payment. As the third link in the payment chain, they often end up waiting months for their invoices to be settled. 

“Local authorities need to make sure they are adding as little as possible to that wait by paying as promptly as possible and also in persuading their main contractors to pay their sub-contractors quickly.”

The ABFA said that small businesses which are struggling to secure prompt payment from clients could use invoice finance as a vital component to assist cash flow.

Invoice finance allows businesses to receive up-front advance on their unpaid invoices, regardless of the time customers take to pay.

Jeff added: “With the economy having recovered back to pre-recession levels, there are now more opportunities for SMEs to grow, whether through purchasing machinery, expanding the workforce, taking on new customers or investing in R&D.

“A huge number of SMEs rely on outsourced work from local government bodies, but there is no reason why slow payment should become a roadblock to growth for them.”

“Small businesses need to be aware of all the tools in their funding kit, including options like borrowing against their unpaid invoices, which are often their biggest asset.”

However, on a positive note, according to the Confederation of British Industry’s SME Trends Survey, SME’s have reported another strong quarter of orders and output growth in the three months to July this year.

Despite the rise in export optimism, orders were broadly flat in the three months to July, disappointing expectations for a strong increase. Nevertheless, firms expect export growth to pick up next quarter.

With this, finance brokerage Total Money Management, has reported seeing an increase in cash flow funding, as well as enquiries on asset finance.

Mobeen Chishti, Managing Director of Total Money Management, said to B&C: “Normally August is quite a flat month with the holiday period, but this year we are seeing a more consistent enquiry level. With alternative lending being made more available, traditional business lenders have revamped their products to compete and some like Lex have re-entered the broker market once again.

“Invoice Finance/Factoring has also seen some changes with the independents fighting it out for more business. Manufacturers and Distributors should be looking at their cash flow and possibly implementing temporary cash flow solutions or refinancing their current Factors for better terms.”

Mobeen added: “We are expecting to also see an increase in sale and lease back enquiries. Having the right business partners and reviewing your business relationships will make the difference between SME’s that grow and those that don’t.”