SMEs struggling with cash flow despite government schemes

Posted on 2 May 2013 by Tim Brown

A new report has brought into question the effectiveness of the Government's attempt to stimulate lending to small businesses, revealing that nearly half of Britain's SMEs are concerned about cash flow over the next year.

The survey of 451 companies with a turnover of over £50,000 also showed that 46% had recently suffered at least one disruption to their cash flow, mainly due to customers being late or unable to pay their bills.

“Cash flow clearly remains a huge challenge for thousands of UK businesses,” said Marcelino Castrillo, head of SME at Santander Corporate & Commercial, which commissioned the study.

The British government, which sees a lack of credit to small businesses as a major factor behind the country’s slow recovery from the financial crisis, has tried to reverse that situation with various schemes aimed at boosting lending.

Last week it extended and expanded the Funding for Lending Scheme (FLS), which provides cheap credit to banks if they increase lending to households and businesses.

The Santander survey showed an increase in the number of businesses using alternative financing to help deal with cash flow fluctuations, but Castrillo said that more should consider these options.

The survey found one quarter of larger businesses, those with annual revenues between £5m and £20m, said they had used or intended to use invoice finance in the next 12 months, compared with just 2 percent of firms with revenues of £250,000 to £500,000.

Invoice financing, where a bank in effect uses outstanding sales invoices as collateral for funding, is becoming very popular in Britain and various online platforms are looking to fill the current funding gap left by banks.