Too Many SMEs Operating in the Red

1st May 2018.

Half of small businesses in the UK are currently operating in the red, according to the latest Small Business Insights index.

Small businesses are the lifeblood of the economy, inspiring job creation and innovative practices. However, their modest means place them in a precarious position in the business landscape. According to new data from the accounting firm, Xero, only 49.5 percent of businesses were operating in positive cash flow last year. Despite the various government initiatives that have been attempted, the UK’s biggest firms are still paying SMEs late, with 30-day invoices being paid after 46 days. The study revealed that late payments are putting a serious cash squeeze on smaller businesses.

The vulnerability that comes from limited revenue should inspire fierce protective instincts from larger counterparts, but supply chain bullying is still rife. The collapse of Carillion exposed the maltreatment of small businesses, and the intimidation tactics used by large firms to exploit payment terms or gain an extension. This treatment of these vital businesses has not only led many into financial straits, but also put the overall economy at risk.

The government has attempted many initiatives to discourage late payment. However, these have had limited impact on business owners too timid, intimidated or cautious to come forward. Westminister seems hesitant to adopt a tougher approach and confront late payers directly though penalties and fines. Until such a cultural shift is undertaken, the Credit Protection Association can help its members dispel bad payers. Our credit checks and company directories allow our members to have complete control over who they do business with, as well as who they do not.

Vicky Pryce, economist and previous director general for economics at the Department for Business, Innovation and Skills, commented: “The impact of late payments on the economy cannot be exaggerated. Work done by the European Commission looking at both business to business and government to business payments found that late payments were directly associated with worsening firms’ cash flow positions, and particularly for smaller firms.”

Small business commissioner Paul Uppal added: Small businesses are crucial to the health of our economy so it is vital that they feel supported in all areas, but particularly in the fight against late payments.

“My role as commissioner exists to help small businesses get paid on time, and while the government works on measures to address the late payment epidemic, businesses should not be afraid to come to us for help. Now is the time to make Britain the best place for entrepreneurs to flourish”.

The impact of late payments on the economy could be devastating. The health of the economy is dependent on the success of its small businesses; so if they suffer, we all do. Many are still unwilling, or unable, to speak up against their large late payers. The government therefore needs to speak on their behalf, punishing late payers and giving small businesses the space to grow.

At the Credit Protection Association, our debt recovery services recover any residual debt or unpaid invoices, while our credit management products protect cash flow and ensure late payers do not return. Our credit checks are particularly thorough, investigating both suppliers and customers who could do harm to our members’ business.

Most recently we have also started fighting for our members’ right for late payment compensation. Our LPC team members will fight to the tooth, and could unlock some hidden potential.

The Credit Protection Association is a credit management company established in 1914. If you supply goods or services on credit then we can help you!

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