SMEs have faced multiple challenges for the past two years, but they might be forgiven for looking forward to better times, now all the lockdowns are behind us. Instead, a recent report shows that the cost of living crisis is creating a situation where more than two million SMEs are only just managing to break even.
Why the Crisis?
Many SMEs had a difficult time during the pandemic, but conditions haven’t improved, even though the worst seems to be over. Businesses have been trying to expand and bounce back, but a wide range of new setbacks have prevented this.
In a recent survey by Bibby Financial Services, SMEs identified several main causes — besides continuing knock-on effects of COVID, the main ones were inflation, conflict in Europe and disruption of supply chains, partly as a result of continuing post-Brexit issues.
Most of all, though, the issues have come out as problems with late payment. Around 1.5 million SMEs have reported bad debt from customers over the past twelve months, with an average of £10,329 written off.
The Just-Breaking-Even SMEs
Bibby’s research has found that 38% of SMEs (2.1 million in total) are now reporting themselves as “just about breaking even”. And that’s not including the 9% who aren’t even managing that and are operating at a loss.
This paints a sombre picture for the future of UK business. Derek Ryan, UK Managing Director of Bibby Financial Services, comments that “While our report highlights a stoic resilience amongst the UK SME community, many are still struggling to keep their heads above water and operating on a day-to-day basis, rather than looking ahead to growth.”
The Problem of Late Payment
The Federation of Small Businesses (FSB) has highlighted that one of the key issues causing these difficulties is the ongoing problem of late payment. This is especially prevalent when SME are providing goods or services to large businesses, who have the economic clout to set their own payment terms, often leaving the SME without any payment for months on end.
The FSB’s National Chair, Martin McTague, points out that “Small firms have been waiting for action on this front for three years, whilst poor payment practices worsened over lockdowns. Legislating to make reporting on payment and supply chain practice mandatory in annual reports is the most effective measure at our disposal to spur change.”
There are signs that the government may be acting on this soon, although no mention was made in the Queen’s Speech. In the meantime, although SMEs can’t necessarily get rid of all late payments, implementing a rigorous and robust credit control system will go some way to reducing the impact and have a better chance of surviving through the economic perfect storm they’re facing.
If you need any help ensuring you get paid what you’re owed, give me a call to discuss your options.