Late payment costs SMEs dear – but it didn’t adversely affect cash flow

“Borrowing money from the bank to finance your business is a lot harder than getting a loan for a car or house as many businesses know all too well, and the result has been that over the last five years we’ve seen a huge increase in alternative finance options,” he said. 

One of these is Peer-to-Peer lending (P2P), which allows individuals to lend money to SMEs, essentially a loan cutting out the middleman. “This type of lending is particularly good if you need access to money quickly,” said Banfield. “It’s a much quicker process – there are no meetings with bank managers, less approval time, and it can mostly be done online or over the phone. There are also fewer fees involved. Bear in mind that many lenders will most likely request to see a year or more of your accounts, so it’s not necessarily ideal for startup businesses, but more so for those SMEs who are hoping to expand and have some track record.”

For advice, he refers SMEs to the trade body, ‘Peer-to-Peer Finance Association’ which has guidelines and codes of conduct.

Another option that Banfield recommends is crowdfunding, which is where funding for a venture is raised from a large number of people. “Unlike peer-to-peer lending, crowdfunding is a good option for those businesses which are just starting out,” he says. “This is particularly popular in the creative industry – bands, musicians, artists and filmmakers – but it is also gaining traction in many other areas. Providers that offer this type of finance usually choose the most promising business plans to feature on their platform. Investors then have an opportunity to invest for a small chunk of equity, and they diversify their risk by investing in a range of businesses at the same time.”

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There are three types of crowdfunding: debt crowdfunding, which is the same as peer-to-peer lending, where investors receive their money back with interest; donation or reward crowdfunding, where investors do so simply because they believe in the business, project or venture – investors can receive small rewards such as tickets, newsletter updates, or an acknowledgement in publicity materials; and lastly, equity crowdfunding, where investors receive shares or a stake in the business.

Another option for raising finance to manage cash flow is Spot Factoring.

“This is a great option for SMEs who are already established and growing but need access to (their own) cash quickly,” said Banfield. “Rather than loaning money that isn’t yours by using one of the above options – which may result in you paying back the loan plus interest or having stakeholders – invoice and spot factoring allows you to access your own cash quickly without having to wait for the client to pay. On paper, your business may be thriving, but in reality the physical money isn’t in your bank and you have bills, expenses, employees to pay or you need money to invest in growth for your business.”

Unlike the other finance options, this is a process which can be turned around very quickly – sometimes in as little as 24 hours – there are no hidden fees and it’s also flexible and allows borrowers to ‘try before you buy’.

Banfield explained: “For example, you can use this method for one invoice, as a one off basis, or multiple invoices – depending on your need. One of the huge benefits of spot factoring is the time it frees up for you, the business owner. Unlike peer-to-peer lending and crowdfunding, which is time consuming in itself, spot factoring is a simple and quick process.”

There seems to be no immediate solution to the problem of late payment but luckily there are an increasing number of ways to manage the cash flow that it produces.

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