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Early warning signs of downturn and late payments harming UK SMEs

Authored by Phil Meekin

Phil Meekin

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Approximate read time: 3 minutes

The regularity and prevalence of late payments means that they have become common place in the world of business. However, this practice is damaging small and medium sized enterprises (SMEs) across the UK who are faced with a bill of over £2bn every year.

New research from Bacs Payment Schemes shows that SMEs are owed a total of £14bn by their customers and while that is a reduction on the £30.3bn figure owed five years ago, it is having a significant impact on their performance and growth strategies.

Currently, one in five small businesses say they are potentially facing bankruptcy if they are owed between £20,000 and £50,000, while 7% of businesses say they are already in that danger zone. As a result, a quarter of small businesses say they rely on cash from bank overdrafts in order to keep up with their essential overheads such as rent, utility bills and buying/producing stock costs.

Late payments do not only impact the growth and affordability of small businesses but also their ability to pay their staff on time, 16% of SMEs have said that they struggle to pay their staff on time as a result of late payments from clients.

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The study also found that 12% of SMEs employ a specific person to pursue outstanding payments with the majority of companies spending around four hours a week chasing these payments. With a third of companies facing delays of around a month, it is clear to see why this is such a big problem and constant worry for SMEs of all sectors wherever they are in the country.

Last month, the Federation of Small Businesses (FSB) published figures which pointed to a drop in confidence amongst its members for the first time since the EU referendum in June 2016. The drop in confidence can be attributed to many things including business rates increases, a rise in inflation and the uncertainty surrounding Brexit including the ability to trade with the EU and employ staff from overseas.

This report from the FSB echoes figures and sentiments found in the latest research from Bibby Financial Services who found that some SMEs are showing signs that the UK economy could be heading for another downturn. Figures from the second quarter of 2017 show that the value of unpaid invoices written off by a business has risen to £20,403, this has increased by 70% in just 12 months.

Consequently, investment has fallen among SMEs with average planned investment down from £101,920 in Q2 2016 to £65,782 in June 2017. An uncertain economy, rising costs and a desire to build up cash reserves were all stated as reasons why some were investing less into their business.

Global CEO at Bibby Financial Services, David Postings, commented on the findings of the new data; “SME activity is often a barometer of wider economic performance… right now we are now seeing signs that businesses are delaying investment decisions… It is possible that this is a sign that the UK is heading for a recession, but it’s still too early to call. We will know for sure over the coming months.”

Whilst late payments and uncertainty surrounding Brexit are blighting many SMEs, they have commented that the key challenges they face currently include winning new clients and contracts, managing cash flow and finding and retaining skilled staff. For now, it seems many SMEs will be aware of the tough times ahead and finding ways to deal with any issues to keep their business going.

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