Businesses now owe each other £75bn and borrow more from each other than from banks.

The report offers some insight into the question of what has been driving business investment as bank lending dries up.

• Trade credit, not bank finance is fuelling the growth of SMEs and business investment.
• Trade credit is now 20% higher than traditional bank lending.
• For most small firms trade credit is 90% of all their funding and SMEs will need to rely on trade credit to fund survival/growth in the post-recession period.
• Big business is not the worst offender - small firms take ten days longer to pay suppliers than their larger cohorts.

The research shows that large firms are net providers of trade credit to small companies, with SMEs receiving £50bn more than they advance in trade credit.

The report found that the length of time it took companies to repay a loan was 58 days. Reducing that to 30 days would release £199bn of working capital back into the UK economy.

For individual businesses, late payments are a significant challenge. The following golden rules to dealing with debtors should help keep your cash flowing.

1. Know your customer and make sure they are able to pay their bills by getting a credit check on them. This might seem like looking a gift horse in the mouth but a debtor becoming insolvent owing you two to three months’ work will create a big hole in your finances for something which costs £20 or so.
2. Agree payment terms before you supply. If they intend taking 60 or 90 days to pay you should find out before starting the contract and make a positive decision to take the work or not and figure out how you will manage until the debt is paid.
3. Invoice accurately clearly and promptly. Make sure you know to whom and where to send invoices and what detail they must contain. Raise invoices as soon as the work is completed and don’t wait until the end of the month. This can result in the customer processing somebody else’s invoices in front of yours.
4. Don’t be afraid to ask for payment. Telephone shortly after you send your invoice and progress the invoice through the customer’s invoice payment system noting who you speak to and what is said in conversations. Monitor payment performance closely and complain if promises are not kept.
5. Be prepared to escalate complaints if payment is not received both in terms of who makes the contact in your business and the level of management within the customer’s management you talk to.
6. Discounts for prompt payment can be worthwhile depending on your need for the payment. The danger is payments slip and they still take the discount, meaning that it is effectively a price reduction.
7. Factoring and invoice discounting can help finance increasing sales. Customers must be creditworthy and you must be prepared for the additional checks and procedures which come with this sort of finance. On the plus side you are likely to get more finance than from a conventional bank loan or overdraft and you will be able to accommodate customer requests for extended payment terms. Recent developments in internet finance mean factoring or invoice discounting via the internet can be more flexible and cheaper than conventional arrangements.
8. Many customers prefer or demand invoices electronically. Consider how you will e-invoice before agreeing a contract. The key is choosing a system which is compatible with your customer’s system.
9. E-invoices can be electronically submitted to customers in a number of ways including by email direct from your accounting platform or integrating with the accounting platform and sending direct to the customer portal:
   - Platform sends automated reminders to customers
   - Customer updates to status of invoice in their system can result in automatic update of your collections forecast
   - Platform provides feedback on customers’ payment performance and cost of outstanding debt
   - Platform can be linked to an application to a finance provider.

The ICAEW Library & Information Service provides full text access to leading business, finance and management journals. Further reading on starting a business is available through the articles and ICAEW guides below.