How Small Firms Can Avoid A Cash Flow Crisis?
By Marcus Hughes, Director Of Business Development At Bottomline Technologies
Small and Medium Enterprises (SMEs) are arguably the bedrock of the UK economy. According to figures from the Department for Business Innovation & Skills, SMEs account for 59.1 percent of private sector employment in the UK and 48.6 percent of private sector turnover. These businesses employed an estimated 22.5 million people in 2010 and had an estimated combined annual turnover of £3,200 billion.
Yet these organisations are operating in a fundamentally different economic climate to the vast majority of their larger competitors. Over the past few years, larger organisations have...
...rationalised operations and leveraged market position to build up significant cash reserves. Typically, banks are offering relatively low-cost credit, when required, and these businesses have been able to put huge pressure on the supply chain to negotiate prices down.
In contrast, small companies are seeing margins eroded and are bearing the brunt of the banks’ continued reluctance to lend. “The average interest rate on smaller loans, of £1m or less, is already double that charged on loans of £20m or more and we expect this trend to continue”, according to Neil Blake, Senior Economic Adviser to the Ernst Young ITEM Club Feb 2012.
Combined with the increasing delay in both international and domestic payment, it is little wonder that cash flow is a major concern. Indeed, according to the British Chambers of Commerce’s latest Quarterly Economic Survey, cash flow remains a real concern for businesses as a result of unfavourable payment terms and a lack of access to capital.
It is clear that the government’s pledged support for SMEs is not realising benefits. Project Merlin has made little, if any difference, to the SME marketplace; whilst the requirement for public sector organisations to pay invoices within ten days is... continued on page two >