Pictured above: Martyn Freshwater

SMEs are failing to capitalise on the weakness of the pound to export their goods and services, due to concerns over how late payments from overseas partners could impact their cash flow, according to Lloyds TSB Commercial Finance.

The warning follows data released by the Office of National Statistics (ONS) in February 2011, which showed that the trade deficit in goods and services - the difference between the UK's exports and imports - grew in December to its highest level since August 2005, suggesting that many companies are less inclined to do business outside of the UK.

The weakened pound has made UK goods less expensive to foreign markets as a result of the downturn in recent years, presenting notable growth opportunities for UK companies with the means to export.

However, according to Lloyds TSB Commercial Finance, concerns around bad debt from foreign partners and the administrative burden in attempting to collect late payments from overseas creditors are fuelling SMEs' reluctance to export.

Martyn Freshwater, regional director at Lloyds TSB Commercial Finance in the West Midlands, said: "Late payments negatively impact SMEs' cash flow and can create barriers to business growth. The problem has been heightened by the downturn with more and more companies unable to pay their creditors.

"Taking into account the problems many businesses encounter with domestic invoices, concerns around late payments are heightened when the debtors are based abroad.

"Those responsible for credit control or business debt management commonly face the additional burden of having to overcome language barriers or coordinate working hours in different time zones."

In response to many SMEs' reluctance to trade internationally, Lloyds TSB Commercial Finance is urging businesses to consider using invoice finance and credit insurance products.

Invoice finance services, such as factoring, allow businesses to draw down funds on their issued B2B invoices and commonly include accounting functions where the provider of the facility queries unpaid invoices with the debtor on the customer's behalf - even if they are based overseas. Invoice finance also bridges the gap between the goods being sold, shipped abroad and payment being received, allowing businesses to trade overseas with the confidence their working capital will not be affected.

Debtor insurance, a policy arranged by Lloyds TSB Commercial Finance, also provides protection against both domestic and overseas debtors.

Martin Walmsley, head of debtor insurance at Lloyds TSB Commercial Finance, commented: "Credit insurance gives companies the confidence to tap into international demand and expand abroad, safe in the knowledge that they are protected in the event that a customer should be unable to pay its invoices on time or, in extreme cases, files for bankruptcy.

"In the current financial climate, UK SMEs can realise significant growth in new overseas markets and should not be discouraged by payment worries. However, we would advise all companies to look at their cash flow position when beginning to export and consider debtor insurance as a safety net should the worst happen."