For many SMEs, cashflow challenges aren't caused by a lack of work. They're caused by waiting to get paid.
Long payment terms of 30, 60, 90 or even 120 days are common across many industries and while larger customers and contracts can drive growth, they can also create a gap between completing work and receiving payment. This often leaves business owners wondering how businesses manage long payment terms without putting pressure on the effectiveness of daily operations.
The challenge is simple: expenses don't stop while invoices remain unpaid. Staff still need paying, suppliers expect payment and businesses need cash available to support growth. That's why managing cashflow effectively is essential.
One solution many companies use is invoice finance, which can help release cash tied up in unpaid invoices while customers complete their agreed payment terms.
A business may have delivered a product or completed a service, but that doesn't mean the money is immediately available.
When customers operate on extended payment terms, revenue can remain tied up for weeks or months. Meanwhile, businesses still need to fund:
This is why profitable businesses can still face cashflow pressure. The issue isn't whether revenue has been earned, but when it will arrive in the bank.
Many businesses question what happens when payment terms are extended. In most cases, more cash becomes tied up in unpaid invoices for longer periods, and as outstanding invoices build up, working capital can become stretched and growth opportunities may become harder to fund.
This is particularly common for SMEs supplying larger organisations, where longer procurement and payment processes are often standard practice. While the work may have been completed, businesses may need to wait several months before accessing cash they've already earned.
Businesses typically use a combination of careful planning and working capital management to navigate long payment cycles.
Common approaches include:
The aim is to ensure enough liquidity is available to meet commitments before customer payments arrive.
For businesses regularly working with longer payment terms, maintaining access to working capital can help support both day-to-day operations and future growth.
Invoice finance allows businesses to access cash from unpaid invoices before customers settle them.
Rather than waiting for the full payment term, a business can unlock a proportion of an invoice's value shortly after it has been issued. The remaining balance is received once the customer pays.
In simple terms, invoice finance helps bridge the gap between invoicing and payment.
Imagine a recruitment business that supplies contractors to a large corporate client:
The recruitment company pays workers weekly, but its customer pays invoices on 60-day terms. This creates a constant timing gap between outgoing costs and incoming revenue.
By using invoice finance, the business can access funds against invoices as they're raised, helping maintain cashflow and meet payroll commitments while waiting for payment from the client.
When delayed payments become a recurring challenge, businesses often focus on improving visibility and control over their cashflow.
This typically involves:
Understanding future cash needs can help identify potential shortfalls before they occur.
Tracking payment trends helps businesses plan more effectively and spot recurring delays.
Prompt invoicing and consistent follow-up can help reduce avoidable payment delays.
Many businesses use invoice finance to reduce their reliance on customer payment timing and create a more predictable flow of cash.
A cashflow gap occurs when money needs to leave the business before income arrives.
This is one of the most common challenges associated with long payment terms. For example:
Invoice finance can help close this gap by providing earlier access to cash that's tied up in outstanding invoices.
Rather than waiting for customer payment dates to determine available funds, businesses can create greater flexibility around how they manage their working capital.
Improving liquidity isn't always about increasing sales. Often, it's about improving access to cash that's already been earned.
SMEs can strengthen liquidity by:
These measures can help businesses maintain stability and reduce pressure on cash reserves when customer payment cycles are extended.
Long payment terms are a reality for many SMEs, particularly those working with larger customers.
However, waiting to be paid doesn't have to mean putting growth on hold. By understanding how cash moves through the business and managing the gap between invoicing and payment, businesses can maintain stability, meet their commitments and continue investing in future opportunities.
Invoice finance is one of the tools businesses use to achieve this, helping turn outstanding invoices into accessible working capital and supporting smoother cashflow throughout the payment cycle.
To explore how Aldermore’s invoice finance solutions can help manage these long payment terms, get in touch with our team to find out more.
Subject to status. Security may be required. Any property or asset used as security may be at risk if you do not repay any debt secured on it.
Learn what cashflow is, what causes cashflow pressure, how SMEs can improve it, and when finance may help bridge short term gaps.
Learn what working capital is, the challenges SMEs face, how to improve cashflow, and when working capital finance could support growth
Learn how SMEs can fund business growth through investment, working capital support and finance solutions that protect cashflow.