Late payments from debtors causing most cashflow problems

Over a third of small firms reported cashflow troubles during the past two years of the economic downturn, with 32% of those being so serious that they threatened to put the companies out of business.

According to a survey of 200 small businesses, 56% of those with cashflow concerns were due to debtors paying late, while 47% put their problems down to economic factors beyond their control. Furthermore, 45% attributed their cashflow shortages to loss of revenue.

Tracy Ewen, managing director of commercial finance company IGF, who conducted the survey, said: “Cashflow is the oxygen of small businesses. A third of small businesses in the UK have had cashflow problems in the recession – and a third of those that did have problems nearly went out of business as a result.

“The reasons for this are well-documented – banks not lending, big companies squeezing suppliers. But SMEs also have to think creatively about the potential sources of finances available.”

The research also found that the worst hit region of the UK was the east of England, with 46% of companies experiencing cashflow shortages in the past two years, whereas 30% of firms in London and the South East suffered problems. Over half the businesses in the building sector admitted they had faced cashflow difficulties, compared with just 24% of companies in recruitment and business services.

Ewen warned: “SMEs in troubled sectors like building and construction need to be really inventive in their approach to securing stronger cashflow and credit options – the likelihood is that the banks will continue to see these sectors as red flags for some time.”

© Crimson Business Ltd. 2010