Cash flow concerns clobber SMEs

Late payments the biggest bugbear for nearly a quarter of small businesses, according to research

Late payments are still dogging cash-strapped SMEs

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.

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.