Irrational demands force SMEs to turn down contracts

Around half of small businesses have been forced to turn down contracts that they would be unable to deliver due to unfair demands, according to new research.

The findings from Hitachi Capital Invoice Finance revealed that irrational demands meant that many SMEs were having to say no to work, despite wanting to take it on.

Contracts that were not paying enough to cover the work, or were too cheap was noted by a quarter of the SMEs taking part in the survey.

Customers that were known to be a paid payer was also off-putting, as were many deals that were too demanding in terms of time management – in the sense that not enough time was granted to complete them.

Some 23% of SMEs said they were offered unfair payment terms as well, which caused them to turn away from potential business due to fears it would negatively impact on their cashflow.

Half of the SMEs surveyed said rejecting contracts in the past year had cost them up to £10,000, with initial start-ups deemed to be the most at risk.

Meanwhile 28% of businesses said they had lost between £20,000 and £30,000 as a result of turning down deals that were not viable to them.

Despite this, 60% of firms reported a positive outlook and said they do not expect Brexit to have a negative impact on acquiring work in the year ahead.

Two thirds of decision makers also said they had not needed to invest personal finances into their business in the past 12 months, a sign of some financial security.

The majority of firms taking part in the survey said they could deliver work in most instances, but that unreasonable terms and asks mean they cannot take on the contracts.

These unrealistic terms are therefore hitting smaller businesses, as they are caught between needing new deals to survive and taking on work that is not feasible financially.

Andy Dodd, Managing Director at Hitachi Capital Invoice Finance, suggests it is “part of a wider problem” whereby many small businesses lack the time and resources needed to chase invoices or to take risks with unreliable suppliers.

Wholesale and retail businesses were found to be in the best financial health, as firms in these sectors were least likely to turn down contracts.

Research from the firm at the turn of this year found that nearly a third of SMEs were in ‘survival mode’ and that turning down work could see them facing insolvency.

A business finding itself in financial difficulty should seek alternative finance options and advice to find the best solutions – this is best done at the earliest opportunity as it increases the likelihood of finding a positive outcome.

By Phil Smith


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