A recent survey by invoice finance company Novuna Business Cash Flow has revealed that a significant number of small and medium-sized enterprises (SMEs) in the UK face severe financial challenges.
The survey, which included responses from 500 SMEs, found that 33% of these businesses will need to apply for finance within the next 12 months to continue their operations.
The survey highlights a heavy reliance on personal sources of finance among SMEs. About 19% of these businesses are using personal savings, borrowing from friends and family, or re-mortgaging properties to manage their financial needs. Traditional secured bank loans account for 17% of SME funding. This reliance on personal and traditional bank loans raises the question of whether other cash flow finance options could provide more stability for SME operations.
Impact of Late Payments on SMEs
Late payments from clients are significantly affecting business cash flow, with 45% of SMEs reporting that delayed payments are disrupting their operations. Business cash flow, the net amount of cash and cash equivalents transferred into and out of a business, is crucial for maintaining healthy operations. In the UK, where timely payments are essential, the delay in receiving payments poses a severe threat to SME stability.
Despite these challenges, only 2% of SMEs have accessed or applied for cash flow finance options such as invoice finance and account receivable factoring since November 2023. These financial alternatives are designed to advance money against outstanding invoices, enhancing cash flow and providing a potential solution to the problems caused by late payments. The low uptake of these options suggests a lack of awareness and understanding among SMEs regarding these financial tools.
External Funding Crucial Amid Economic Challenges
The survey indicates that 37% of SMEs believe external funding is more crucial than ever due to worsening economic conditions. Additionally, 34% of SMEs admitted that they would have to close without essential financial support. This underscores the importance of comprehensive financial literacy among SMEs and the need for efforts to ensure these businesses are fully informed about the various financing options available to them. With adequate knowledge, SMEs can not only survive but also thrive in challenging economic landscapes.
John Atkinson, Head of Commercial and Strategy at Novuna Business Cash Flow, emphasised the benefits of exploring diverse financing options, particularly cash flow finance. “Our survey underscores the critical role that access to business finance plays in sustaining companies, and the variety of options used to stay afloat. Business cash flow finance can offer a lifeline to companies struggling to make ends meet due to delayed payments. It’s essential that more SMEs become aware of and understand how to leverage such options effectively. At Novuna Business Cash Flow, we are committed to helping businesses flourish by easing the pressures of cash flow challenges associated with late or outstanding invoices.”
Cash Flow Finance: An Untapped Resource
The findings highlight a pressing need for SMEs to explore and understand alternative financing options beyond personal borrowing and traditional bank loans. With a significant portion of businesses facing cash flow issues due to late payments, tools like invoice finance and account receivable factoring could provide much-needed relief. These options also advance money against outstanding invoices, thereby smoothing out cash flow and helping businesses maintain operations.
The survey’s results indicate that a substantial portion of SMEs might not be fully aware of the financial tools available to them. There is an urgent need for concerted efforts to raise awareness and enhance understanding of these options. By doing so, SMEs can be better equipped to navigate financial challenges and ensure their long-term viability.
