Tougher trading conditions are putting pressure on small business cash flow — and slow payments from larger firms are making the situation worse, a new survey suggests.

According to research involving 500 senior business leaders, many big companies are failing to pay their suppliers on time, adding to the financial strain on smaller enterprises.

37% of business owners say that delayed payments from their clients and customers are making it harder for them to pay wages, settle debts, and invest in growth, research from lending bank Shawbrook shows.

The money owed is no small sum; recent data shows that small businesses are reportedly waiting on an average of £21,000 in unpaid invoices

Worryingly, 10% of businesses now describe cash flow as a “significant” issue, meaning it could put them in the red. This follows a raft of tax rises in April which caused operating costs to skyrocket and left nearly one million firms at risk of closure

SMEs consider loans to counter late payments

Small businesses typically have much smaller cash reserves than large firms. That’s why, while a slow or unpaid invoice for £10,000 might seem like an admin error for a large firm, it could prove to be the nail in the coffin for the independent contractor hired to do the work.

The issue is driving company owners into debt. 32% say they have considered taking out a business loan to make up costs, while others have considered alternative finance products.

Meanwhile, Shawbrook reports that 28% of founders have even picked up business expenses with their own funds, while 21% are in arrears with their suppliers. 

In 2016, the Office of the Small Business Commissioner was specifically set up to improve payment practices and supply chain accountability. It has since introduced various initiatives including the Fair Payment Code (FPC), which spotlights firms that pay promptly and fairly.

Emma Jones CBE, who stepped into the role of Small Business Commissioner at the start of this month, told Startups: “‘We are very aware of the monies owed to small firms and hours spent chasing debt which is why we are working at pace to improve the situation by encouraging large companies to apply to the Fair Payment Code, and responding to cases from small businesses to resolve payment delays. 

“The full resource of the Office is focused on making life easier for small businesses by getting money moving round the economy. These efforts will, I am confident, result in founders being freed up to spend more time on growth, which is what they went into business to do.”

Price rises can’t fix cash flow chaos

Ahead of late payments, 46% of firms surveyed by Shawbrook said their cash flow had been hit by rising costs. UK organisations have had to reckon with a double whammy of hiked business rates and employer National Insurance Contributions (NICs) introduced in April.

In response, one survey carried out at the end of March found that 60% of small businesses would increase prices to cover this higher NICs burden.

But in an inflationary environment, when every sale is hard-fought for, employers also need to consider the impact on consumer spending. In fact, Shawbrook finds that other factors affecting cash flow include slow sales (27%) and volatility or seasonality in sales (25%).

Cash flow pressures take toll on business leaders

Unsurprisingly, cash flow is now proving a significant source of stress for many businesses, affecting both leaders and their teams. 

For one in five decision-makers, the strain has taken a toll on mental health. Meanwhile, 30% say they are worried about the knock-on effect on staff morale.

The financial squeeze is also forcing companies to put the brakes on their ambitions. Shawbrook reports that 30% have had to delay growth plans, while a further 27% have struggled to secure the funding they need to move forward.

In more severe cases, 10% of business owners have even considered selling up or closing their doors altogether — a stark sign of the pressure many are now under.



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