Increase in Debt belies Tighter Cashflow Controls for SMEs

Contrasting reports in recent weeks have revealed that British companies are tightening their cashflow controls, leading to a reduction in the average time taken to settle an invoice; however, the overall amount of debt owed to SMEs is still on the increase.

Figures from payments processing service BACS and financial services providersYorkshireand Clydesdale Bank seemingly contradict one another – so what’s really happening to the economy at the moment?

Business Debts up 6% in Six Months

Looking at the BACS figures first, and at the end of 2011, the total outstanding debt owed to SMEs in theUKstood at £35.3 billion, an increase of 6% over the previous six months’ figure of around £33.3 billion.

Spokesman Mike Hutchinson said in mid-May: “Our research highlights the challenges faced by many thousands of SMEs in chasing payments from customers and maintaining a healthy cashflow, which is the lifeblood of any successful business.”

The BACS report also saw an increase in payment delays, from 28 days in the first half of 2011, to 29.6 days beyond the agreed date by the end of the year.

However, that contrasts with what Yorkshire and Clydesdale Bank saw in their own study.

Cashflow Controls Cut Payment Times

Yorkshire and Clydesdale Bank’s research was conducted among customers of their Invoice Finance team, who had cut their waiting time on £6.7 billion of payments from 52 days to 49 days in ten months leading towards the end of May.

Head of invoice finance Martin Rothera noted that this means SMEs are better placed to meet essential outgoings, such as salaries, stock costs, and their own bills.


But for one in ten of the companies in the report, delayed payments are a significant concern, and if the average payment period were to creep up to the 90-day mark they would expect to have to scale back their operations, or close completely.


So why do the two surveys seem to contradict one another?


Moving the Goalposts


It is possible that the apparent differences stem from the different definitions used in the two studies; for instance, while the banks’ survey focused on total payment times, the BACS report looked only at how far beyond the agreed date an invoice had been paid, rather than the total period from the date of issue.


Similarly, the BACS survey was simply conducted among “489 SMEs in theUK” at the end of 2011, with senior financial decision-makers giving their responses. Conversely, the banks surveyed over 1,000 companies, and certain of their statistics specifically related to their invoice finance customers.

Regardless of the discrepancies, however, it seems that total debt is on the rise and, while some payments are getting prompter, those that do become overdue may take even longer to chase up.

In that kind of climate, it is likely that the focus on credit control seen among the respondents to the banks’ survey will continue to spread among British businesses, potentially helping to settle more invoices on time and promote economic recovery as a result.


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