Small business struggles take toll on economy
The widespread issues befalling small businesses in the UK are having a negative impact on the economy as firms struggle to trade effectively.
Alongside late payments and unpaid invoices, small firms are also having to overcome long payment terms and reduced consumer confidence.
All of these factors combined mean that SMEs are missing our on more than £250 billion of liquid cash flow – finance that could otherwise be piled into supporting growth and innovation.
It also means that the risk of insolvency increases, as the businesses concerned lack the additional finance to overcome any unforeseen issues they may face.
While the size of a company has a big impact on how long it takes to be paid – those with turnover under £1 million wait 72 days on average for payment compared to 48 days for larger firms – payment terms are also key.
Larger firms, for instance, commonly have 90-day payment terms but that slows the payment process and makes cash flow management much more difficult for SME suppliers.
Some 90% of firms claim to receive payments late, according to Atradius, while insolvency trade body R3 has revealed that late payments are a hugely influential factor in one in five corporate insolvency cases.
The economy takes a hit as impacted SMEs often show a reduced appetite for investment and are usually less keen on making hires.
Of course the late payment issue is nothing new, and the Government is attempting to take action with the implementation of new regulations and the appointment of a Small Business Commissioner.
The aim is to tackle the late payment culture that exists to free up funds for business growth and to ensure that they have working capital.
Alternative finance options can help with the prospect of raising finance to meet business requirements, helping to protect to the longevity of a business in the process.
By Phil Smith