Where Invoice Finance Fits Within The Late B2B Payments Discussion

Small Business Cash Flow

When it comes to late B2B payments, the U.K. has emerged as center stage in what has become a global conversation about responsible and fair B2B payment practices.

The market is among the most vocal about late B2B payment challenges, which can be especially harmful to smaller suppliers. At the same time, the U.K. government has captured headlines with its efforts to address the issue.

One of the most robust initiatives that emerged from the aforementioned government efforts is the U.K.’s Prompt Payment Code, which was recently revamped to tighten B2B payment expectations for its signatories. Yet the Code remains voluntary, and the U.K. market, like many others around the globe, offers limited options when it comes to legal enforcement of proper supplier payment practices.

Ray Lowrey, managing director at Praetura Invoice Finance (PIF), recently told PYMNTS that while these efforts are a positive development, there are other factors that must be taken into consideration when addressing small suppliers cash flow challenges. He discussed some of those factors and explored the opportunity for Praetura Invoice Finance to expand access to capital for small and medium-sized businesses (SMBs) in need.

A Broader Conversation

When exploring the issue of late B2B payments, there is a tendency to assume that the practice is the result of large corporations intentionally delaying payment beyond agreed-upon terms to their small suppliers.

While that is often the case, the topic of late B2B payments should perhaps consider expanding into the issue of longer B2B payment terms.

“I’d argue, in many ways, that a problem just as serious has been the propensity for many (usually large) customers to push for or impose longer payment terms on their [SMB] suppliers of up to 90-120 days,” noted Lowrey. “Many [SMBs] feel that they have no choice but to agree to these and therefore have to wait for their money and find ways to cope with the impact to working capital.”

The topic of lengthening payment terms is key to the broader issue of late payments. After all, an organization that imposes 120-day payment terms on a small supplier may not necessarily be paying an invoice late but is still taking months to settle the bill.

And while the Prompt Payment Code requires signatories to agree to 30-day payment terms (reduced from its previous requirement of 60-day payment terms in January of this year), it remains voluntary.

Expanding Working Capital Options

Considering the importance of small businesses within the broader economy, ensuring healthy working capital for small and medium-sized businesses (SMBs) is not merely just a matter of supporting individual operations. As such, ensuring those small businesses have options when it comes to accessing finance is key.

Invoice finance can be especially useful, and while a growing number of factoring providers have stepped into the market in recent years, Lowrey said that businesses are not only looking for digitization and efficiency from their invoice financing providers.

“There have been many FinTechs which are providing [SMB] finance in the U.K., and their services will be suitable for many businesses, but many more wish to have a more personal, service-led approach,” he said.

Praetura recently announced the creation of a new division within the organization, called Praetura Invoice Finance (PIF), that will introduce invoice financing offerings to small and medium-sized businesses (SMBs). The launch aims to meet businesses’ needs for personalization when selecting a financing product, which Lowrey said should be a priority for small businesses that, today, are faced with a mountain of product choices from a mountain of providers.

Read more: Praetura To Help SMBs With Flexible Finance

“I’d recommend that [SMBs] take their time to talk to the proposed provider to ensure that they understand the needs of their business and provide a tailored solution — rather than applying a ‘one size fits all’ approach,” he noted.

In addition to the cost of financing, providers should offer ancillary services like credit control, as well as the flexibility to adjust financing offerings as a business grows and as its needs change.

With digitization offering new opportunities for small business financing firms to optimize their products, Lowrey also noted that tools like data extraction and open banking technology can further improve the financing process for both the small or medium-sized business and the financier.

Not only having options but understanding which options might be most effective for individual needs, will be an important piece of alleviating the pain of late B2B payments and longer payment terms to the small and medium-sized business community.