Late payments causing major headaches for West Midlands SMEs

LATE payments are continuing to cause major headaches and cashflow difficulties for SMEs in the West Midlands, new research has suggested.

The situation is already bad but more than a third of businesses in the region expect it will deteriorate still further during the next six months.

According to its latest Business in Britain report, Lloyds Bank said that while overall business confidence in the region remained strong (at 42%) and many firms were considering investing in growth, others had said their plans were on hold due to the current climate.

The report said as many as one in five businesses could be restricting their investment plans because of ongoing cashflow problems.

Late payment is cited by most (83%) of these businesses as the major cause of inhibited growth.
 
The twice-yearly report, which is now in its 23rd year, canvasses the opinions of 1,500 UK companies, predominantly SMEs, and shows that 36% in the West Midlands expect the proportion of customers requiring deferred payment terms to increase in the next six months, down slightly from 39% six months ago.

Just 9% of businesses expect that proportion to fall during the second half of 2015.
 
Donald Kerr, managing director at Lloyds Bank Global Transaction Banking, which provides alternative sources of financing for customers including asset based lending and trade finance, said: “While the number of businesses in the West Midlands suffering cashflow problems has fallen from a peak of 35% in 2013, it remains stubbornly high.
 
“Cashflow is the lifeblood of any business but for too many businesses, late payments continue to be a significant problem. Where businesses do expect cashflow to be an issue, they need to take action to manage issues like late payment so that it doesn’t hamper their opportunities to grow.
 
“Specialist types of lending such as invoice finance can alleviate these pressures by allowing businesses to borrow against the value of their invoices helping them to avoid payment delays and improve cashflow.”
 
He said thorough credit checks on customers and setting out clear payment terms at the outset of any client relationship would also help avoid problems.
 
After late payment, other major causes of cashflow difficulties include fall in demand for products and services, as cited by 39% of firms, and default by customers (17%).