Tax & admin · 7 December 2016

Cash flow issues cripple seven in ten small companies

Cash flow
Over four in ten small business owners claimed that poor cash flow made it difficult to pay suppliers on time

Over 70 per cent of small business owners agree that poor cash flow poses the biggest risk to their company, as a new study reveals its impact on the survival of smaller firms.

The study, conducted by small business lender Amicus Commericial Finance, found that cash flow problems have affected four in ten small businesses over the last two years, with firms operating in the North East of England the most affected by a lack of sufficient funds running through a company.

In response to the research, John Wilde, managing director at Amicus Commercial Finance, acknowledged that “most small firms recognise the damage caused by cash flow problems but that doesn’t guarantee their immunity”.

The primary challenge of poor cash flow – cited by 41 per cent of survey respondents – was being able to pay suppliers on time. The paradox here is that late payments from further up the supply chain, down to small companies, remain one of the main causes of cash flow problems.

Research from the Asset Based Finance Association (ABFA) has suggested that clients of small companies take an average 72 days to pay an invoice, with micro business owners waiting six weeks longer to be paid than larger firms.

Further to this, a recent study by the Federation of Small Businesses (FSB) found that effective action into the country’s late payment culture would have saved 50,000 small firms from folding in 2014 – a £2.5bn loss to the UK economy.

Business Advice recently revealed the best and worst retailers for paying small suppliers on time. Supermarket giant Tesco was found to be the guiltiest culprit, taking an average 105 days beyond its specified terms to pay an invoice.

In an article for Business Advice, Alex Fenton, CEO of cash flow finance company GapCap, provided the owners of smaller firms with a guideline to improving the cash flow within a business.

Fenton emphasised the importance of making positive cash flow a constant priority, advising that “from here on out, every transaction you make, every business plan drawn up, and every new relationship created should be done not only with sales, or even profits, in mind, but cash”.

The below table from Amicus Commercial Finance illustrates what small business owners feel is the greatest challenge when confronted with cash flow problems.

Paying suppliers 41 per cent
Meeting debt repayments 30 per cent
Buying inventory 29 per cent
Paying staff 24 per cent
Accessing new finance 21 per cent
Loss of contracts 18 per cent

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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