June 28, 2013 - Rachel Miller

Cash flow is a massive headache for SMEs

Inadequate cash flow is a serious worry for 46% of small and private firms in the UK, according to new research from recruitment specialist Robert Half UK.

Feedback from businesses reveals that the main reason for cash flow problems is slow-paying customers (61%). Other factors include insolvencies (45%), competitive pricing and low margins (41%), higher business expenditures (40%), lower revenue (38%) and higher taxes (26%).

On a regional basis, the research shows that firms in the North and Scotland are the most concerned about cash flow – and that's where slow-payment and low margins are most common.

The survey also found that 23% of finance managers are concerned about access to investment financing and 36% say operating in a sector perceived as risky or depressed is the chief barrier to securing financing.

Phil Sheridan, managing director of Robert Half UK said: "Cash flow clearly remains a priority for finance leaders, particularly small and private companies who rely heavily on liquid capital to keep business running as usual. Access to financing has prompted cash flow concerns for one in four businesses and it is generally issues on a macro-level that are preventing organisations from securing the investment they need."

Meanwhile, a survey conducted by YouGov for FreeAgent has found that cash flow is being adversely affected because small firms wait too long to chase unpaid invoices.

The poll of 500 small business owners (with five or fewer staff) has found that only 14% of said they would chase an unpaid invoice within the first week after it was due. The survey found that:

  • 19% of respondents said they would wait one to two weeks to chase an unpaid invoice;
  • 23% said they would wait between two weeks and a month;
  • 18% said they usually chased unpaid invoices within one to two months;
  • 4% said it took them between two and three months;
  • 2% said they waited three months or longer before asking for payment for an outstanding invoice.

Ed Molyneux, CEO and co-founder of FreeAgent said: "Many small business owners are letting their customers get away with not paying them for weeks, or even months, after their invoices are due. When you're running a small business, it's important to ensure that you get paid on time."