British businesses suffer due to £500bn delay in unpaid invoices
British SMEs are owed more than £500bn in outstanding invoices, an increase of more than 70% in two years, according to the latest Lloyds Bank Commercial Banking Business in Britain research.
The problem is likely to get worse during 2016, with almost a third (30%) of small businesses expecting more of their customers to demand deferred payment terms in the next six months, the research found.
UK SMEs also own almost £2.5tn of assets that could be used to fund further growth, again a huge 220% increase on 2014, when Lloyds Bank found that small and medium-sized businesses owned a total of £770bn in assets.
Together, the figures suggest that a lack of understanding of alternative funding options is holding British businesses back.
Stephen Everett, head of product and propositions for Lloyds Bank, Global Transaction Banking, said:
“Nearly a third of businesses (31%) told us that late payments were affecting their cashflow, and with the amount of money owed them in unpaid invoices, it’s not surprising.
“Yet having this volume of unpaid invoices – just like having thousands tied up in physical assets – needn’t prevent firms from having working capital to invest in growth.
“Different types of funding such as invoice finance or asset-based lending can help unlock the working capital that they need, allowing businesses to grasp more of the opportunities that exist at the moment.
“Failing to take advantage of these types of funding, on the other hand, could be seriously holding them back, affecting not only their growth, but for many firms, potentially stunting the the growth of the entire supply chain beneath them.”
The research also found:
– Around one in six (17%) of SMEs admit to having cashflow problems (2014: 19%)
– Almost a third (31%) said that late payment was the biggest cause of cashflow difficulties. A further 11% blamed defaults by customers.
– The average SME is now owed £100,000 in outstanding invoices (2014: £60,000)
– One in four businesses (25%) are owed £200,000 (2014: 10%)
– The average SME has more than £600,000 in physical assets (2014: £240,000)
– It also owns more than three quarters (77%) of those assets outright (2014: 65%)
Businesses in Sussex, Surrey, Hampshire and Dorset were owed the most in outstanding invoices (£109,000 on average), while those in Scotland were owed the least (£79,000).
Those in London and Essex owned the most valuable assets (£670,000) but owned the lowest proportion of those assets outright (72%).
By contrast, businesses in Bristol, Somerset, Devon and Cornwall owned the least valuable assets (£520,000), but owned the greatest proportion of those assets outright (82%).
“Unless businesses look at ways to unlock the value tied up in these assets, both they and the UK economy overall are likely to be held back.”
Alternative funding options can use these unpaid bills and assets to help provide firms with cashflow difficulties with access to working capital, ensuring they don’t miss out on opportunities to grow.
Such options include invoice finance, for example, which can allow companies to access up to 90% of an invoice’s value within 24 hours of it being issued.
By taking the guesswork out of payment times, this gives businesses greater control of the working capital they have access to. Because it can grow with a company’s turnover, it can also give them greater access to capital as their order books increase in size.
Asset based lending enables businesses to unlock the value tied up in stock, plant, machinery or property to give them access to working capital that can help them expand, acquire new equipment, or even fund a management buy-out or acquisition.
Designed for businesses with a turnover of more than £1m, it works alongside invoice financing to provide a cost-effective, scalable and flexible way of increasing working capital without slowing growth.