Winning a lucrative government contract might feel like something to celebrate, but SMEs who take on subcontracted work for local councils wait an average of 71 days for payment, according to new research by the Asset Based Finance Association (ABFA).
Onerous payments terms can mean that funds are delayed reaching the main contractor and then delayed again reaching the subcontracted SME.
“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,” said Jeff Longhurst, Chief Executive of the ABFA. “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.”
In the meantime, says the ABFA, invoice financing may help smaller businesses to take on council projects without risk to their cash flow, as it allows SMEs to receive up-front advances on unpaid invoices, regardless of the payment terms.
“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,” says Longhurst. “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.”