The Small Business,Enterprise and Employment Act was established this year as a bid by the government to reduce the barriers that many small businesses in the UK face when looking to trade, grow and compete.
The Act covers a number of topics from access to finance, public sector procurement, The Pubs Code, insolvency and corporate transparency. These affect all small businesses across the UK and whilst some may be more affected in certain areas than others, all businesses need to be aware of the act and the potential it has to improve cash flow.
The key area relevant for cash flow improvement in SMEs is access to finance and we explore this in more detail.
Access to Finance
1. Business Payment Practices – the Act introduced business payment practices, ensuring large and listed companies publish their payment practices bi-annually on a digital platform. The companies will need to show:
- Average payment time
- Proportion of invoices paid beyond terms
- Any late payment interest owed and paid
- The proportion of invoices paid within 30 days, over 30 days, over 60 days and over 120 days
2. Funding for small businesses – improving access to finance through increasing the availability and sources of investment for small businesses, so that they can secure the funding they need to grow. They will do this by:
- Opening up access to small business credit data, making it easier for a small business to seek a loan from alternative lenders
- Requiring banks to pass on details of small and mid-sized businesses they decline for a loan, with the firm’s permission, to online platforms which can help match them with alternative finance providers
- Introducing ‘cheque imaging’ to speed up cheque clearing times and increase customer choice in ways to pay
Practical ways the Act helps SMEs with their cash flow:
The Act enables SME businesses to use alternative funding such as invoice finance which they may have not previously been able to access due to ‘bans on assignment’ clauses in procurement contracts. It also takes into account payment practices and begins to highlight the affect of late payment on the UK economy and SME businesses.
While it is still early days the Act does create a talking point and shows that the Government has SMEs on the agenda and are looking at ways to improve trading overall.