The Government recently took an important step towards improving the payment landscape for SMEs across the UK.

In January, it published new guidelines for reporting on payment practices and performance. While at a glance the guidelines may not sound remarkable, they outline a new obligation for Britain’s biggest businesses to report on their payment practices. This will shine a spotlight on how businesses pay their suppliers and whether they make supply chain finance available, which will improve payments standards for SMEs.

In future, qualifying companies must report on both business payment standard terms and the average number of days taken to make payments. Importantly, the guidelines also state businesses must report whether supply chain finance is made available to suppliers.

Supply chain finance emerged in the 1990s and has become an increasingly important part of the financial services sector since last decade’s financial crisis.

Such a move will be welcomed by small business owners who struggle with the detrimental impact late payments have on business. The FSB recently reported that almost two in five (37 per cent) SMEs have ran into cash flow problems as a result of late payments, with an estimated cost to the UK economy of £2.5 billion.

The effective use of supply chain finance can dramatically reduce the impact of late payments for SMEs. It allows them to access instant finance against outstanding invoices and ultimately, ease cash flow troubles. Supply chain finance also benefits large businesses, allowing them to support suppliers and optimise their working capital.

Despite its advantages, implementing supply chain finance solutions has historically been an administrative struggle. Traditional players such as banks and factoring firms burden time poor business owners with lengthy sign-up processes at a time when they require instant access to working capital.

However, new Fintech entrants, such as Crossflow Payments, offer new models that sweep away these traditional obstacles. By combining technological innovation and deep credit expertise, such platforms are able to provide a more efficient sign-up process than traditional players. This cuts the sign-up process to less than 48 hours and often doesn’t require personal guarantees – ideal for time poor business owners.

With the interests of SMEs put first, Crossflow Payments, in partnership with the International Association of Alternative Finance (IAAF), is set to launch its own Fair Funding Code in the coming months. The code will outline steps to ensure SMEs have vital access to fair payment terms that do not place a strain on their working capital.

Therefore the government’s guidelines, although welcome, must serve as a starting point. The government must continue to consult with both traditional players and FinTech providers in the supply chain finance market to ensure that fair, equal and rigid payment terms are put in place.  

SMEs are the lifeblood of the economy and their potential to grow should not be hindered by late payments.

By creating a better working environment for SMEs, we will not only benefit individual businesses, but the economy as a whole.

Tony Duggan is the CEO and co-founder of Crossflow Payments.