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Cashflow nightmares grow as average small firm owed more than £100k

The average small business in the region is owed more than £107,260 in outstanding invoices, an increase of more than 85 per cent in two years,

Pic: Lynne Cameron/PA Wire
It is getting harder for small firms to manage cashflow

Cashflow nightmares for growing businesses in the West Midlands are getting worse – with the average SME owed more than £100,000.

The average small business in the region is owed more than £107,260 in outstanding invoices, an increase of more than 85 per cent in two years, according to the latest Lloyds Bank Commercial Banking Business in Britain research.

And experts claim the problem is likely to get worse during 2016, with 34 per cent of small businesses expecting more of their customers to demand deferred payment terms in the next six months.

Tim Hanley, area director at Lloyds Bank in the West Midlands, said it was concerning for cashflow.

He said: “Thirty-four per cent of businesses in the region told us that late payments were affecting their cashflow, and with the amount of money owed them in unpaid invoices, it’s not surprising.

“Yet having this volume of unpaid invoices – just like having thousands tied up in physical assets – needn’t prevent firms from having working capital to invest in growth.

“Different types of funding such as invoice finance or asset-based lending can help unlock the working capital that they need, allowing businesses to grasp more of the opportunities that exist at the moment.

“Failing to take advantage of these types of funding, on the other hand, could be seriously holding them back, affecting not only their growth, but for many firms, potentially stunting the growth of the entire supply chain beneath them.”

Researchers said West Midlands businesses also own an average of almost £414,270 of assets that could be used to fund further growth – a giant 164 per cent increase on 2014 when it was just £157,064.

The research also found:

  • More than a quarter of West Midlands SMEs admit to having cashflow problems, up from 17 per cent last year.

  • More than a third of those said that late payment was the biggest cause of cashflow difficulties. A further 27 per cent blamed falling demand.

  • A total of 30 per cent of businesses in the region) are owed £200,000, up from 10 per cent last year.

  • West Midlands firms own more than three quarters of their assets outright.

Mr Hanley said alternative funding options can use these unpaid bills and assets to help provide firms with cashflow difficulties with access to working capital, ensuring they don’t miss out on opportunities to grow.

Such options include invoice finance, for example, which can allow companies to access up to 90 per cent of an invoice’s value within 24 hours of it being issued.

He added: “Unless businesses in West Midlands look at ways to unlock the value tied up in these assets, both they and the UK economy overall are likely to be held back.”

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