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08 Feb 2010
Comments:1
A third of SMEs are relying on personal finance to prop up their business as banking money dries up and a late payment culture continues to blight smaller firms.
A survey by the Federation of Small Businesses (FSB) and ICM Research reveals that 33 per cent of respondents described personal means as a major source of finance in 2009.
Personal savings were cited by 24 per cent of firms, as were retained profits. A personal credit card was used by 14 per cent, with half of those claiming it was a major source of money.
Further reading
About one in 10 companies used funds from family and friends and two per cent even used their personal pension to support their business. An overdraft was cited as a major source of finance for 28 per cent of firms and five per cent said the same of supplier credit.
FSB national chairman John Wright drew a correlation between SMEs’ reliance on personal funding and the government’s poor payment performance.
“Small businesses rely on receiving payments within the timescale agreed to maintain cashflow to ensure the business can run on a day-to-day basis,” he said.
Central government, EU institutions and quangos were the worst offenders,
each paying at least 30 per cent of suppliers late. Local authorities and the
NHS
settled a quarter or more of bills late.
Adam Harris, chief executive of trade body the Technology Channels Association, claimed using personal finance and retained profits has long been a “calculated risk” for SME owners.
“Quite a few businesses have not had much choice as they have been carrying bad debt,” he said. “Using personal finance is not ideal, but needs must.”
Pierre Lams, founder of mobility VAR Handheld PCs, claimed he had seen firms turning to personal funding last year.
“I know of businesses that have struggled and have had to do that,” he said. “I have friends with businesses who have had to fund them.”
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Do you agree?
SME late payment crisis
As your recent article SMEs forced into personal pocket, 8 February 2010, pg3, detailed that a third of SMEs are relying on personal finance to prop up their business as banking money dries up and a late payment culture continues to blight smaller firms. Though there have been signs of tentative recovery, it is clear that SME owners still need to take control of collecting customer payments during this tough economic climate and address financial processes: The gulf between those with healthy cash flow and those sweating over debt is a paper versus electronic payment issue. The roll-out of Faster Payments, allowing almost 'real time' electronic funds transfers (EFT), will widen that gulf even further if businesses don't adopt an IT solution now.
The cost of processing a cheque is around ten times that of an EFT, with longer clearing times at the bank making a late payment even later and exacerbating cash flow issues for both parties concerned.
Electronic payments save so much time and resource - it's difficult to understand why any SME would choose to receive cheque payments. Investing in simple software allows businesses to set up secure, validated EFTs. Business owners can take control of when they are paid; they don't need to rely on customers to pay on time because the software does it for them. According to recent Bacs research, the average SME spends 38 days a year just chasing late payments of £30,000 and overdue invoices of just £20,000 can cause bankruptcy.
This is the twenty-first century and yet astonishing numbers of SME owners are still entrenched in using unnecessary, archaic processes that could cost them their businesses.
Adrian Stafford-Jones
Managing Director
Albany Software
Posted by Adrian Stafford-Jones | 12 Feb 2010
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