Few people are unaware of the challenging conditions that SMEs currently face, but less is known about exactly where they need help. The British Chambers of Commerce have reiterated that the government must do more, but, arguably, SMEs also need to be more proactive when it comes to small business finance.
The Department for Business, Innovation and Skills (BIS) has published figures that show that the number of UK start-ups is growing despite continued concern over small business finance, but at the same time two recent reports suggests that these companies are being buffeted by headwinds created by high commodity prices and late payments.
For the 48,000 new start-ups that emerged in 2010, according to the BIS’ Business Population Estimates report, the issue of accelerating commodity prices is one tied up with inflation and interest rate policy and it is the government that must take the lead here. However, SMEs can exercise their own power with regard to the matter of late payments.
According to a new Bacs report, over 50% of small firms are victims of late payment. The average waiting time stands at 39 days beyond agreed payment terms and the average amount owed at any one time is an astonishing £27,000. In total, the research claims that SMEs are owed a staggering £24 billion. The impact on small business finance and SME business banking relationships needs little explanation.
What can SMEs do? Bacs suggests its own system, but perhaps a better answer is invoice finance. For example, invoice discounting and factoring allows SMEs to raise capital against invoices, helping to counter the effect of late payments and maintain vital cash flow. For SMEs bursting with initiative, this kind of service should be part of their plan.
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