A CASH flow squeeze caused by late payments is costing the UK economy £2.5bn each year and causing 50,000 small firms to go bankrupt, the Federation of Small Businesses (FSB) has warned.
The trade body has blasted large companies that it says are using “bullying tactics” in order to use smaller businesses as a credit line.
ArchOver’s chief executive Angus Dent, commenting on the report’s findings, said that UK businesses are in a “storm of underfunding” which peer-to-peer lending is starting to fill.
The FSB’s report, published on Wednesday, found that 37 per cent of small businesses have run into cash flow difficulties, 30 per cent have been forced to use an overdraft and 20 per cent said late payment has hit profits. In the worst-case scenarios, late payments have caused businesses to fail due to the resulting cash flow difficulties.
The research claims that in 2014, if payments had been made on time, 50,000 business bankruptcies would have been avoided, growing the UK economy by £2.5bn.
“Uniquely, the UK now risks having a business culture where it is acceptable not to pay SMEs on time,” said Mike Cherry, national chairman of the FSB.
“Small businesses have to run a tight ship with their cash flow, and as they struggle with increasing business costs on one hand and an uncertain domestic economy on the other. They should not also have to struggle with the stress, time and money required to chase overdue payments from corporate giants.”
He added: “Big businesses should respect the supply chain and stop using smaller businesses as a credit line by delaying payments and applying bullying tactics.”
The FSB has called for the government to make company boards of larger companies accountable for their payment strategy; to appoint a small business commissioner with “name and shame” powers to tackle supply chain bullying; and to bolster the penalty system that tackles repeat offenders.
“It is my view that most businesses in the UK are underfunded, undercapitalised and under-borrowed,” said Dent, chief executive of P2P business lender ArchOver. “Capital is always time consuming to acquire and often more expensive than SME owners are willing to pay. Coupled with a multi-year decline in lending to businesses – now being partly filled by P2P lenders, although we have a long, long way to go – we have a storm of underfunding.
“Businesses that are underfunded, irrespective of size, use their suppliers as an alternative lender. In time, P2P lending will fill this gap. Of course, in the meantime many good businesses will unnecessarily go to the wall.”