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News - 6 March 2012

Cash Flow the biggest problem for SMEs

Despite government pledges to improve the business landscape for SME’s the economic reality remains difficult. The Institute of Credit Management recently described late payment of trade debt as “endemic”, in spite of a public sector commitment to pay invoices within 10 days and an EU directive for all companies to make payments within 30 days.

Small and medium enterprises (SMEs) are arguably the bedrock of the UK economy. According to figures from the Department for Business Innovation & Skills (BIS), SME’s account for 59.1% of private sector employment in the UK and 48.6% of private sector turnover. These businesses employed an estimated 22.5 million people in 2010 and had an estimated combined annual turnover of £3,200bn.

Lavinia Newman of ABDS says:
“SMEs are operating in a fundamentally different economic climate to the vast majority of their larger competitors. Over the past few years, larger organisations have rationalised operations and leveraged market position to build up significant cash reserves. Typically, banks are offering relatively low-cost credit, when required, and these businesses have been able to put huge pressure on the supply chain to negotiate prices down. In contrast, small companies are seeing margins eroded and are bearing the brunt of the banks’ continued reluctance to lend.”

According to the British Chambers of Commerce’s latest Quarterly Economic Survey, cash flow remains a real concern for businesses as a result of unfavourable payment terms and a lack of access to capital.
Project Merlin, the government’s pledged support for SMEs, is not realising benefits.

In Europe, many governments have taken the decision to implement e-Invoicing across the public sector in order to support a faster payment and more cost effective model. While today in the UK a large proportion of both orders and payments are made electronically, some 90% of invoices are still submitted on paper. Relying on paper-based invoicing processes leaves SMEs with little room to manoeuvre – the only real bargaining option is to offer customers a discount for rapid payment.

Adopting e-Invoicing may well be an answer.

If you need any help and advice on Management Accounts, Budgets and Cash Flow Forecasts, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar NOW to discuss how ABDS can help in all your financial planning.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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