71% of accountants say their medium sized business (MSB) clients are delaying growth plans
Large firms exert downward price pressure, while supplier costs rise
80% of accountants report falling margins at MSB clients
The UK’s medium sized businesses (MSBs) are delaying growth plans as they buckle under financial and operational pressures from all sides, new research by Invoice and Asset Based Lender Venture Finance and Accountancy magazine, the official journal of ICAEW, today reveals.
Stuck in a vice between rising supplier costs and downward price pressure from large, corporate customers, almost three quarters (71%) of accountants say their MSB clients have halted growth plans.
As a result, 80% of accountants have seen their clients’ margins eroded, compounded by late paying customers, and suppliers demanding increasingly stringent payment terms.
Yet the government and banks are offering little respite to MSBs, according to their accountants, who warn of the damage to economic growth if the current situation is allowed to persist.
Venture Finance and Accountancy magazine performed the research among 250 accountants in May and June of this year in their annual Credit Check report.
The squeezed middle
Half (50%) of accountants report that large customers of their MSB clients are causing them significant difficulties.
Late payment remains an issue for two thirds (63%) of accountants’ clients, and almost half (46%) have seen their clients’ large customers impose extended payment terms. As a result, over half (56%) of accountants say debtor days have increased across the board for their MSB clients in the last six months.
At the same time, significant proportions have noticed suppliers chasing payments earlier than usual (72%), and with increased frequency (53%). Half (50%) have even seen the threat of legal action over outstanding payments.
Over two thirds (69%) of firms have witnessed large customers applying downward pressure on prices, while four fifths (80%) have seen suppliers raising wholesale prices, leaving MSBs in a vice.
Peter Ewen, Managing Director of Venture Finance, comments: “Medium sized businesses have huge potential to be the real engine of growth the economy needs.
“Currently they are stuck between a rock and a hard place as they struggle with pressure from both suppliers and customers.”
Cashflow crisis
The result of these combined pressures is significant. Almost three quarters of accountants (72%) agree that a resulting lack of cashflow is the greatest risk to their medium sized clients.
Almost two-thirds (65%) have had difficulties paying suppliers on time, and the same proportion (62%) have been unable to pay tax. Four fifths (80%) of accountants said MSB clients had also experienced decreased sales margins.
As well as stunting growth plans; over half (50%) of accountants report the majority of their MSB clients are currently static. And two thirds (69%) believe that, if their problems aren’t addressed, it will severely affect the economy’s ability to grow.
Peter Ewen comments: “Squeezed margins and a lack of cashflow mean MSBs are currently unprepared to grasp growth opportunities when they arise. These businesses need to overcome working capital difficulties before they can actively pursue growth and add momentum to the wider economic recovery.”
Difficult environment
As MSBs experience pressure from suppliers and customers, accountants also believe that the existing business environment is tempering growth ambitions.
Almost three quarters (72%) believe the banks have so far been unsuccessful in helping MSBs operate and grow and nearly two thirds (64%) say the same of the government.
Over three quarters (79%) also believe the complex business tax regime to be hindering growth, while more than half (55%) single out red tape as a major limiting factor.
Peter Ewen concludes: “The Government and the banks have been singled out as the obvious ‘villains’ for continuing business difficulties, but to lay all the blame on them is wrong. Many businesses are still stuck in a ‘siege mindset’, unaware, and not seeking out, other routes to growth.
“The missing part of the puzzle is education from all involved. Businesses need to know about the support and other forms of finance available, to help them handle life beyond the quick-fix credit of the past.”
His sentiments are echoed by Accountancy magazine editor, Sara White: “Mid-sized businesses are seen as the driver for economic growth but the twin perils of the VAT increase and a tough regulatory regime is stifling expansion. Chronic cashflow and late payment issues are adding to the pain.
“While two thirds of respondents welcome the recent cut in corporation tax, the complexity of the UK tax regime is still seen as a major hindrance to growth. With half of the companies surveyed reporting static growth, any decision to increase interest rates would be hugely negative.”
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