British SMEs predict growth
Western Union Business Solutions, a leader in global payment services, today announced the latest findings of the Western Union Business Solutions International Trade Monitor (ITM), the quarterly economic confidence survey of 670 UK SMEs engaged in international trade.
The report confirms that the economic recovery is underway with 70% of SMEs predicting growth:
· 24% expect to grow more than 10%;
· 25% expect growth of 5-10%;
· 21% of SMEs expect to grow between 0-5%;
· Furthermore, 23% of SMEs reported that they had grown by more than 10% in the past 12 months.
The positive growth forecast is further supported by SME plans to recruit and invest in their companies in the next six – 12 months:
· 42% intend to recruit more people – the highest number on record – indicating that recent falls in the UK unemployment rate may decline further;
· 64% said they plan to invest more in their business, with the majority of these looking to invest in technology, process improvement and plants/equipment.
Despite positive growth expectations, SMEs have been hit by rising costs:
· 56% of companies surveyed reported an increase in operating costs in the last 12 months;
· However, 55% said they will keep their prices the same in the coming six – 12 months to keep costs to customers down;
· Only one in three SMEs (35%) are increasing prices;
· 4% are lowering them.
Cashflow remains a key issue for UK SMEs; 44% cited late payments as the number one challenge to cashflow. This echoes recent research published by Bacs that shows small and medium sized companies are owed £39.4bn in late payments.
Overall, confidence in the UK economic climate continued to grow in Q2 2014 with 86% of SMEs reporting confidence in the domestic economy, an increase of 30 percentage points from the same period in 2013.
Christina Hamilton, UK managing director of Western Union Business Solutions, headquartered in London, said: “These results are a strong indication that the UK domestic recovery is here and the reported growth expectations are an important sign that British SMEs have turned a corner. In previous quarters SMEs were focused on survival; now they are investing more and planning to grow.
“This type of investment in people and process improvement is a clear sign that SMEs that trade internationally are investing for the long term, which, after several years of decline and difficult trading conditions, is very positive news for the wider UK economy.
“However, we cannot ignore that the cost of doing business is rising. The reluctance of SMEs to raise their prices and pass on their increased costs to customers shows they still believe the recovery is fragile and are more concerned with being competitive than protecting their profit margins.
“Late payments continue to plague businesses and their cashflow. For an SME, late payments can mean the difference between paying staff on time, paying suppliers and in extreme cases, staying afloat. Reduced cashflow has a knock-on effect and can hold SMEs back from growth.”
Credit easing
Conditions around credit availability appear to be easing with 63% of SMEs believing they could easily obtain credit now if they applied for it, indicating that SMEs could be feeling more certain about the health of their balance sheets and their ability to gain access to finance. Of the 24% who had applied for credit in the last 12 months, the vast majority (82%) were successful in obtaining it –a 13 percentage point increase from the previous quarter.
However, when asked what their main methods of funding are, over a third (36%) said bank overdrafts followed by credit cards at 27%, showing that SMEs are still resorting to other sources of finance.
Christina continued: “The research shows a mixed picture on credit. It is a positive sign that 63% of SMEs believe they would be granted credit if they applied, but we are still seeing a large number of SMEs turn to bank overdrafts to fund their business.
“Credit availability is vital for SMEs to enable them to grow their operations and invest in their companies. What we are seeing with this quarter’s International Trade Monitor is an increasing appetite for growth and investment.”
