Debt causes problems for SMEs

Small businesses in the UK are losing around £6.5bn every year due to unpaid invoices, according to research by GMAC Commercial Finance (GMAC CF).

Cash flow is vital for the financial health of SMEs and can make or break a business. The time between issuing an invoice and receiving payment needs to be taken into account in order for a company to run efficiently and plan ahead.

The Department of Trade and Industry (DTI) states there are almost 4 million SMEs in the UK with a combined annual turnover of £1,153bn pounds. The loss of £6.5bn is a huge chunk of revenue that goes missing every year and requires a large replacement of additional turnover to make up for the loss. The actual cost to SMEs is much greater than just unpaid invoices. The time spent chasing payments and deals that are missed due to lack of funds must also be taken into consideration.

The issue of unpaid invoices is now so large among SMEs that advisory boutiques are educating small businesses about the alternatives available to ensure invoices are paid. One such service offered is invoice finance which can provide 100% credit protection against client invoices, freeing finance and allowing the company to be more accurate when predicting cash flow and borrowing requirements while taking away the stress of chasing outstanding debtors.

David Arthur, GMAC CF’s director of sales for invoice finance said: “These results show the alarming amount of money that SMEs are writing off to bad debt each year. Unpaid invoices are unacceptable and seriously damage the health of small business cash flow. However, by using solutions such as invoice finance with credit protection, there is room for minimising this figure and reducing the amount of hours wasted chasing bad debt. Invoice finance can relieve the pressure on the finance and resources of companies, allowing them to concentrate on growing their business rather than worry about where the next cheque is coming from.”