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Small Businesses Suffer Funding Constraints

Red Flag Alert Shows That SMEs Are Struggling With Late Payments


David Shirt, Press Officer | 0161 838 3094

Levels of critical financial distress amongst UK companies continued to fall during Q3 of 2013.

According to the Begbies Traynor Red Flag Alert research, the number of businesses experiencing ‘critical’ financial distress fell to 2,952 in Q3 2013. During the previous three months, the figure stood at 2,951.

The industry report found however a rise of 23% in the number of businesses experiencing ‘significant’ levels of financial distress.

Here, small to medium-sized firms (SMEs) were found to be feeling the brunt of the financial distress.

The research revealed a 29% increase in ‘significant’ problems amongst SMEs, while the level amongst larger companies fell by 16%.

Julie Palmer, a partner at Begbies Traynor, commented: "The past three months have shown a worrying spike in ‘Significant’ distress levels across all sectors covered by the Red Flag Alert, which from previous experience is a consistent trend during this fragile stage of the economic recovery.

"Unfortunately, SMEs are bearing the brunt as endemic late payments and higher costs of funding take their toll on smaller companies’ cash flows, thus adding further fuel to the fire of the UK zombie problem.

"This represents a major step backwards in the Government’s efforts to improve the fortunes of this group and suggests more support is needed to nurse vulnerable SMEs back to health, before this backbone of the economy is dragged into deeper distress.

"We welcome the Government’s consultation on penalties for late payments to small suppliers and hope that this is a shot across the bow of larger businesses which rely on paying late to fund their own cash flows.

"However, our statistics show that the SME community needs swift action on late payments, reducing the regulatory burden and business rates, and improving funding availability.

"Without a rapid improvement in funding for the working capital and investment required to compete effectively with larger companies during the economic recovery, we could see an increase in insolvencies in the new year."

Expert Opinion
These statistics follow positive growth statistics for the UK economy and they certainly reveal how fragile the UK economy is.

“Irwin Mitchell recognises how damaging the issue of late payments can be to a company’s cash flow and we support calls to make access to finance far easier. We also understand that late payments can quickly develop into time consuming commercial disputes, and we know that when this happens, SMEs require a speedy and effective legal solution. It is often the case that the quicker a business seeks help, the better the outcome.

“Business confidence is higher than it has been for a long time, but it is clear that there are many companies which are being held back. We cannot afford to be complacent and assume that long-term growth in the UK economy is guaranteed.”
Steven Beahan, Partner