SMEs cutting customer payment terms to protect against late payments
UK SMEs are facing growing cashflow pressure, with 40% saying they have been forced to cut customer payment terms to protect their own finances, according to the latest SME Confidence Tracker by the UK’s largest independent invoice financier, Bibby Financial Services (BFS).
With the Commercial Payments Bill yet to be passed, and prime minister Andy Burnham and chancellor John Healey’s first Autumn Budget due in October, the data paints a picture of a stressed small business population.
60% of SMEs say customers are taking longer to pay than a year ago, and businesses are now owed an average of £72,000 in outstanding invoices, rising to £143,000 amongst mid-size businesses.
The data also reflects pressure on supply chains. Average bad debt has edged above £30,000, while the proportion of SMEs suffering losses has also increased since the start of the year. Almost six in ten (58%) have experienced at least one supplier either ceasing to trade or becoming insolvent in the past six months, while 55 percent have experienced the same among their customers.
Keith Fryer, director of business development at FORT Builder’s Merchant commented: “More customers are struggling to pay us on time than ever before, often because they’re dealing with late payments themselves. Chasing late payments is a time drain, our time and resources are precious. At the end of the day, we’re a builders’ merchant not a bank.
“Invoice finance has been vital in providing the cashflow we need to maintain and grow our business despite these challenges. While we’re in the green, we know many who aren’t, when all they need is the right funding, and easier access to it. In some ways, it’s that simple to help small businesses like ours grow.”
The latest SME Confidence Tracker, based upon research among over 1,000 UK SME owners and decision makers, finds poor access to finance compounds cashflow issues and further restricts growth. Among those using or considering financing options, a quarter (25%) have had a funding application declined, and almost a third (32%) have had credit lines reduced by lenders in the past six months.
Derek Ryan, CEO for North West Europe at Bibby Financial Services, added: “Late payment finally seems to be on the government’s agenda with the Commercial Payments Bill, which is encouraging. But SMEs need more support. Even at 30 days, payment terms cause cashflow headaches for businesses that need to pay staff, suppliers, rent and rates. It’s for this reason many are turning to external sources of finance, but our data shows that for some firms, accessing the finance they need is becoming more difficult than even just six months ago.”
Ahead of the Budget, SMEs are seeking further support for late payments, access to finance, and the cost of doing business. Almost a third (32%) of UK SMEs want robust and effective late payment legislation by the end of this parliament. Following the new government’s cut to business rates for retail and hospitality sectors, 36 percent want such measures to be extended to other sectors.
Derek Ryan continued: “The new government has a fantastic opportunity to stimulate growth in the economy as we move into the final quarter of the year. SMEs must be at the heart of this. But many are still facing significant challenges relating to the cost of doing business and accessing the funding they need to grow. Addressing late payment is a good start, but it’s essential they have the support they need to adapt to new legislation. If the government wants to grow the economy, access to finance must also be a priority.”