The cash flow problem crippling Britain

My early years in business, like many people’s, were an almost continual run of sleepless nights and worry over cash flow.

The cash flow problem crippling Britain

My early years in business, like many people’s, were an almost continual run of sleepless nights and worry over cash flow.  Totally bootstrapped, we were reliant on enough customers paying on reasonable terms.  Most of the time, it worked.  However, I remember one desperate week.   

One client had run up a particularly large bill and was into the third month of not paying.   I rang them, naively thinking that an honest approach was best.  I explained that I literally couldn’t pay the wages that Friday unless they settled their well-overdue account.  There was a long pause at the other end.  Then the voice drawled scornfully, “Oh dear.  I would never allow myself to get into a predicament like that.  I’m afraid I won’t be able to help at the moment,” and down the phone went.

It is a curious belief in those with funds that it is always the business owner’s fault when they run low on cash.  The reality is all it takes is enough of their customers to not pay, for long enough.    Government figures estimate there is more than £23.4bn currently owed in outstanding invoices to UK businesses, with small businesses spending an average of 3.6 hours a week chasing payment.    

In 2022, insolvencies were 22,109, a horrendous 57% up on 2021 and the recent IMF predictions is that 2023 looks grimmer still.  Late payment already causes 50,000 small businesses to close each year.  

Tina McKenzie, Policy and Advocacy Chair of the Federation of Small Businesses, would like to see the frightening numbers of small businesses owners lost during COVID reversed by helping people back in the workplace, increasing the Small Business Rate Relief, raising the VAT threshold, increasing rather than cutting R & D tax credits and Help to Green vouchers. With energy bills about to rise three or four times, Tina says we need “a proper scheme like the EBRS that FSB campaigned for and won last autumn, and which the Government currently plans to decimate in April.”  But it is cash flow and fair and proportionate taxation, Tina emphasizes, that need to be prioritised with audit committees of large corporate businessesbe given oversight for payment practices. 

The Good Business Pays campaign say tackling late payments is crucial to unlocking growth for the UK’s small businesses.  Up to £60bn of additional revenue could be unlocked for small businesses if large customers paid on receipt of invoices.  In reality, Business Energy and Industrial Strategy (BEIS) data reveals that 70-80% of businesses pay later than settlement terms. Good Business Pays thinks 30 days should be a maximum, not the norm.  Their founder and CEO, Terry Corby, says that “late payment is a problem that has been overlooked by big business for too long, Small and mid-sized companies need financial certainty of cash flow, especially as they face on-going economic turmoil that will only be exacerbated by the end of the energy grant in April”.  He says that new research shows 48% of small business owners in London are not sure whether their businesses will still be trading this time next year because they are owed money. Imagine almost half of London’s small businesses gone in one year. The ripple effects of slow and late payments are huge.

Ian Cass, MD of The Forum of Private Business, is leading the newly formed Micro Business Alliance.  The Alliance aims to help the government understand and support the 1.2 million micro-businesses and represent their views to the government, acting more as a go-between than a pressure group.   Ian wants the government to “stop treating small business as if its big business only smaller.”  It has different needs and issues,” he says.  At 75% of the economy, the sector should come first in government thinking.   It should receive support to set up and grow through the initial early years where many fail and tax breaks that reward risk-taking and innovation.  A leading member of the Alliance is Sir Tony Robinson, who has also long campaigned for payments within 30 days as opposed to the real average of 68 days, this issue also features high on their agenda.

If it was only a small amount of the economy, one could perhaps understand that nothing has been done on this issue.   But small businesses and the self-employed already contribute a staggering £2.1 trillion to the UK’s economy and employ 16.4 million people – that’s the majority of private sector turnover and employment.  Imagine indeed if that were to halve in a year.

I remember, in my early years, the enthusiastic support for entrepreneurs and small businesses, in particular under Vince Cable.   It seemed entirely logical, but how things have changed.  Tina McKenzie of the FSB sums it up. “Entrepreneurship is without doubt the route to the UK’s economic recovery, as it was in bringing us out of the 2008 recession.  In the immediacy, cashflow is critical to smaller businesses, and too many of them are being needlessly hit by poor payment practices from their clients, both private and public. Tackling this problem once and for all whilst stimulating growth through a fairer tax system and greater investment in innovation, including green innovation, is needed now”.   Will we see it?  I see little reason to be optimistic and that is a tragedy for the UK.

Jan Cavelle
Jan Cavelle

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