The Forum of Private Business (FPB) has reported that nearly two thirds of businesses are operating with cash reserves of under £5,000 and businesses still lack confidence about looking for additional finance.
That means business owners have even less room for manoeuvre when it comes to cash flow.
Some buyers are indulging in “behavioural late payment”. That is to say, they are choosing to pay late rather than following the letter of their contract. It’s a policy that leaves small businesses with a choice between taking a hit elsewhere, or waving goodbye to sales.
This isn’t simply about passing delays along a chain: businesses being paid late and consequently having to make their own payments late because they’re waiting for the funds to arrive.
It’s more about larger firms that have sufficient resources but can use their buying power to dictate terms beyond the level that the FPB consider is fair and reasonable.
Until recently the FPB has campaigned for interest to be paid on late payments, but the Chartered Management Institute argues (and we and the FOB have agreed) that increased regulation and a specialist regulator might not prove the right answer.
Enshrined regulation can encourage some financiers not to think about the consequences of their actions – the letter of the law, followed strictly, does not ensure small businesses get the best treatment.
Then the trouble is that interest on late payments has the effect of making late payments “allowable”, as if late financial compensation is as good as the delay not happening at all… which it isn’t.
Suppliers can be as guilty of bad business behaviour as customers, and the FPB is concerned that trust in larger British businesses is being eroded by these practices.
The Forum’s five point Business Ethics Pledge calls on politicians and influencers to sign up to protect and promote the interests of the small and medium-sized businesses they represent, and more broadly, to challenge large businesses on any practices they feel take advantage of their small business suppliers.
Our findSMEfinance.co.uk website brings us funding requests that tend to stem from two situations.
The first, and most frequent in our recent experience, is the good news story: the company that’s pushing right up against its current limits like a houseplant that’s outgrown its pot.
But a minority of businesses, especially in the tax-year-end season, have their minds on survival rather than growth. “I need to clear a VAT debt to get back on top and start seeing a profit,” says one applicant. “My boiler and central heating system has broken beyond repair this supplies heat and hot water to my hair salon,” another tells us.
One small short-term loan - or one on-schedule payment - could ensure these businesses are still here at the end of the year.
Adam Tyler is chief executive officer of the National Association of Commercial Finance Brokers.