Cash flow is still causing concern for many SMEs
According to research by R3 (The trade body for Insolvency Professionals) the number of businesses who are just paying the interest on their debts has risen from 103,000 in November 2013 to 154,000 September 2014.
In 2009 when the recession was at its peak, many businesses were able to keep trading by only paying the low interest rates, they were known as “Zombie businesses” and there are some concerns that these businesses are starting to appear again.
Making the minimum payments should not be seen as a long-term solution to cash flow worries despite it giving the businesses some cash to circulate in the short-term. A clear structure needs to be implemented to ensure a business is receiving payments on time in order to pay their own suppliers on time.
After the recent growth for UK micro, small & medium (SMEs) businesses it is easy to forget that peaks in trading can also create negative side-effects for businesses as well. Over trading and late payments can easily initiate cash flow problems for businesses and with finance for SMEs still tight, businesses struggling with cash flow will have limited options to give themselves some “breathing room”.
The recent growth also will mean that low interest rates are soon coming to an end and creditors may not be as lenient as in previous years when waiting for their payments.
Businesses need to start to become savvier to the fact that just because trade is increasing, doesn’t mean that cash flow problems still can’t arise. By having a clear cash flow forecast to work alongside, it will hopefully give a business more stability and routine for when the peaks and troughs of trading come along.