THE UK'S SMEs are suffering at the hands of large businesses, according to a Begbies Traynor Red Flag report.
SMEs exhibiting signs of early stage distress increased 10.5% in the third quarter compared to the previous one – this is in stark contrast to the 61% decline seen in large companies.
The Begbies Red Flag data monitors early signs of companies in financial difficulty, broken down on a quarterly basis.
Julie Palmer, partner at Begbies Traynor, said: "These figures demonstrate that an increasing number of SMEs are bearing the brunt of the current challenging credit and trading conditions. It is evident that larger businesses are exploiting their scale by enforcing lengthier payment terms on SMEs.
"This, together with the disproportionate impact of higher energy prices and the limited availability of funding support, is combining to form a perfect storm for the UK's SME sector."
This week Sainsbury's came under fire by the Forum of Private Business for increasing all non-food supplier payment terms from 30 to 75 days.
The move has seen the Forum enter the grocer in to its 'Hall of Shame', where it will join other large businesses such as Dell, Argos and Carlsberg, which have all previously increased supplier payment times retrospectively.
Other findings in the Red Flag report showed that the UK has seen a 9% increase in combined stress levels in Q3 compared to the previous quarter.
However there is a marked north/south divide. Southern-based businesses saw a 7% increase in combined stress levels.
Quoted companies are continuing to feel the crunch as they made the most profit warnings in a third quarter since 2008, according to an Ernst & Young profit warnings report.
According to their study, 68 profit warnings were made by quoted businesses in Q3 2012 – the highest third quarter for four years and eight more than the previous quarter.
Adverse weather conditions were blamed by 12 businesses, with other reasons such as weak UK demand, a slowdown in global markets and the growing risks to the economic outlook.
Keith McGregor, head of restructuring for Europe, Middle East and Africa, said: "While some profit warnings from consumer facing sectors blamed the poor weather, the underlying weakness of the UK economy and global growth concerns landed the heavier blows to profits and expectations.
"In the UK, an exceptional series of one-off events has inevitably created dips in demand and productivity which has made it hard to get an accurate fix on the state of the economy. Across Europe, the outlook still appears weak and economic growth will remain slow."
Is it surprising that SME are struggling.
We are faced with increased reporting to HMRC next year, increased fines if we don't comply.
The governments recognises the importance of SME to the economy so proposes to water downt he current Late Payment Legislation, but in the next breath come up with a wonderful 'new idea' of Supply Chain Finance.
Great idea in theory but think about the reality.
Will Sainsbury for example put in new IT systems that allow it to notify the bank of its supplier that it has authorised an invoice and will pay in so many days ?
Will the Banks put in systems to deal with all these invoices ?
How much cost is incurred in the above ?
Our PM says its win win... SME can get paid quicker...
But the reality is that the likes of Sainsbury will simply increase payment terms (as they have) and SME will pay the interest charges !
Surely a FAR FAR FAR simpler idea will be for Large companies to REDUCE thier payment terms, pay SME quicker. Then SME can reduce thier overdrafts and other costs of finance - which in the long run means they can reduce costs to large companies, invest in more jobs, and more importantly be less likely to go into liquidation for cash flow issues.
Refer to www.payontime.co.uk for more information on the proposed changes to Late Payment Legislation and the effects to SME.
Posted by: Ashey Smith, 29 Oct 2012 | 14:45
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