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22 Sep 2009
Comments:1
Cash flow worries caused by late payments are still the number one headache for small businesses, according to the Forum of Private Business (FPB).
The organisation carried out its latest Economic Downturn Panel survey among its members, which revealed that 23 per cent picked late payment and the resulting poor cash flow as their key issue. In contrast, 20 per cent picked a lack of sales and 11 per cent cited complying with health and safety regulations as their biggest bugbear.
Banks escaped lightly, with just six per cent picking their tardy decision-making as a major problem, and four per cent felt the steep cost of bank lending was an issue.
Further reading
A significant 42 per cent of FPB members that took part in the survey reported a deterioration in prompt payments from customers – more often than not bigger businesses – compared to just three per cent that said there had been an improvement. A total of 56 per cent said there had been no change from previous months.
Phil Orford, chief executive of the FPB, said: “Small firms’ cash flow is being decimated by credit restrictions and declining trade. Our research suggests that poor payment, which has always been a problem, is now threatening the very survival of many businesses. We want the UK’s biggest companies to take the lead and pledge to pay their suppliers on time by signing up to the [government's Prompt Payment Code] in order to set in motion a consensus of prompt payment through the supply chain.”
Other results included just five per cent of business owners saying access to finance has improved, with 22 per cent reporting it had deteriorated. The average interest rate for lending is 6.5 per cent, significantly higher than the Bank of England’s base rate of 0.5 per cent. The average interest rate for overdrafts is 6.8 per cent.
Also 28 per cent of respondents said the viability of their business has improved, with 22 per cent saying it has declined, and 50 per cent reporting no change.
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Do you agree?
SME owners clearly need to address financial processes
SME owners clearly need to 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 causing 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. Who can afford to spend 38 days a year just chasing late payments of £30,000 when overdue invoices of just £20,000 can cause bankruptcy?
This is the twenty-first century and yet the Bacs research shows astonishing numbers of SME owners are still entrenched in using unnecessary, archaic processes that could cost them their businesses.
Yours sincerely,
Adrian Stafford-Jones
Managing Director
Albany Software
Posted by Adrian Stafford-Jones | 23 Sep 2009
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