On the surface, managing the finances of a small business should be easy. You put money into one end, and money comes out of the other. And as long as the amount coming out is bigger than the amount you’re putting in, you’re succeeding. When it’s put like that, it doesn’t sound so hard, does it?
But the trouble is when the ideal model comes up against reality- and the reality is that cash flow isn’t a constant. Purchases need to be made, wages need to be paid out and funds have to be available. And when there isn’t, that’s when the mechanism becomes gummed up. While a larger business will probably have plentiful cash reserves it can dig into to help it through the lean times, a smaller operation may well be operating essentially hand to mouth, at least for the first few years.
According to the money transfer service Bacs, last year saw small businesses paying £6.7 billion just chasing invoices they were already owed. And that has knock-on effects on other businesses too – over a quarter of small business owners who said they’d been troubled by late payments had found themselves forced to pay their own suppliers late too, and so on. 28% say they have had to go as far as to cut salaries in order to keep their business afloat, and over two million people in the UK may have been paid late due to cash flow issues caused by their employers themselves not having been paid in time.
According to the Federation of Small Businesses, more than 50,000 small businesses in the UK close every year due to not having received payments on time, with a cost to the country’s economy of £2.5 billion.
In his Spring statement, chancellor Philip Hammond promised to tackle what he called “the scourge of late payments” to smaller businesses by large corporations, and announced a new requirement for transparency among bigger companies as to how they are paying their suppliers. There is as yet no timeframe for when this will be rolled out, but Britain’s small businesses should be watching with interest, as if implemented properly this could help ease a lot of financial heartache.
If you are looking to raise funding for your business to ease cash flow problems it’s always best to talk to a professional. SME funding UK have access to over 200 funding sources and can almost always help a small business.
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