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LATE PAYMENT AND INTEREST RATE HIKES HIT SME'S BUT FIRMS REMAIN OPTIMISTIC
The number one financial challenge facing British small and medium enterprises (SME) is getting paid by their customers according to new research.
The survey, undertaken by the Asset Based Finance Association (ABFA), revealed that nearly 50% of SME's found it difficult to get paid by customers within their payment terms. This is reinforced by the fact that around 44% of companies have had customers asking for extended credit in the last six months.
Kate Sharp, Chief Executive of the ABFA, responds to the key findings: "Cashflow problems, caused by limited working capital and poor credit management, is a major contributing factor to corporate failure in this country."
"In order to reduce this type of pressure it's important to examine where the cash is being tied up. More often than not unpaid invoices are the main culprit. Britain's SMEs must keep abreast of their debtor schedule to ensure they have the capital needed to support the business."
The research, which examined a variety of financial challenges, also found that half of the SME's (48%) surveyed said interest rate increases in 2007 have had a detrimental affect on their business. The biggest impact was felt by businesses turning over less than £100,000 (57%) and those in the manufacturing industry (57%).
Despite this, four out of ten companies claimed the financial health of their business was robust and just over half (55%) predicted their turnover will increase in 2008. The only variance is amongst companies within the engineering sector where over 60% predicted turnover will stay the same.
Interestingly, private capital was the most popular way to fund business activity in 2007 with companies stating they will continue to use this method in 2008. Sharp comments: "The relentless interest rate hikes this year appear to have put SMEs off traditional finance and so they are turning to less reliable options, such as private capital, to fund growth."
"Our research shows that small business perceives private capital as being far more flexible than any other form of finance. Whilst, there is a degree of truth to this, this type of funding is usually limited and is rarely adequate to support rapid growth. The results demonstrate that education about the different types of funding solutions is still required."
"This is particularly important as a more stable form of finance will
help them with activities such as planning capital expenditure which was highlighted
as the second most difficult business activity."
How would you classify the financial health of your company?
- Gets a cold occasionally - 44%
- Robust - 42%
- It's got the flu - 10%
- It should be in hospital - 3%
Do you have discounts with your existing suppliers?
- Yes - 63%
- No - 25%
- In negotiation - 2%
- Not applicable - 10%
Have your suppliers been asked to be paid more quickly over the last 6 months?
- Yes - 32%
- No - 68%
Have you been asked to provide extended credit by your customers over the last
6 months?
- Yes - 44%
- No - 56%
What is the most difficult for you to do?
- Pay your suppliers on time - 20%
- Pay your employees / contractors on time - 7%
- Purchase stock/ raw materials - 10%
- Purchase necessary machinery - 15%
- Pay VAT/PAYE on time - 16%
- Manage sales ledger - 9%
- Get paid by your customers within your terms - 42%
- Plan capital expenditure - 25%
What are your average debtor days?
- 30-39 days - 24 %
- 40-49 days - 26 %
- 50-59 days - 23 %
- 60-69 days - 15 %
- 70+ days - 11 %
- I don't know - 1 %
How much of your debtor book would you class as a "bad debt"?
- 0-5% - 87 %
- 5-10% - 9 %
- 10-15% - 0.9 %
- 15-20% - 0.9 %
- Over 20% - 0.5%
- I don't know - 0.9%
Over the last year, would you say that your "bad debt" has…
- Increased - 19 %
- Decreased - 16 %
- Stayed the same - 63 %
- I don't know - 2 %
How do you see your company turnover developing in the next 12 months?
- Increase - 56 %
- Decrease - 4 %
- Stay the same - 25 %
- I don't know - 2 %
How are you planning to finance this future growth of your company?
- Asset Finance (hire purchase, leasing, contract hire etc.) 10 %
- No external finance 15 %
- Business Loan 9 %
- Business Mortgage 4 %
- Trade Finance 3 %
- Overdraft 15%
- Private capital (own/ friends / family etc.) 16%
- Personal Loan 3 %
- Factoring 5 %
- Invoice Discounting 9 %
- Stock finance 3 %
- Other 7 %