UK businesses face cash flow difficulties because of late payers

Cash flow problems experienced by UK businesses are primarily caused by late payments, Lloyds Bank revealed on Wednesday.

The British retail bank’s twice-yearly Business in Britain report is conducted by Lloyds Bank Commercial Banking, which canvasses the opinions of 1,500 UK companies that are primarily small and medium-sized businesses. The survey is now in its 23rd year.

Lloyds latest Business in Britain report shows that one in five businesses are experiencing cashflow problems and the situation is expected to worsen in the next six months.

Despite overall business confidence remaining strong at 43%, Lloyds found that nearly one in three businesses, or 31%, expect more customers to require deferred payment terms over the next six months, increased from 27% six months ago.

Although many businesses are said to be considering investing in growth, 18% admit to having cash flow problems, with 59% of those businesses citing late payers as being the main reason.

Only 7% respondents to the Lloyds Business in Britain survey are expecting cashflow difficulties to decline during the second half of 2015.

Donald Kerr, managing director at Lloyds Bank Global Transaction Banking, a provider of alternative sources of financing for customers including asset based lending and trade finance, commented: “While the number of businesses suffering cashflow problems has fallen from a peak of 35% in 2013, it remains stubbornly high.

“Cashflow is the lifeblood of any business but for too many businesses, late payments continue to be a significant problem. Where businesses do expect cashflow to be an issue, they need to take action to manage issues like late payment so that it doesn’t hamper their opportunities to grow.

Kerr added that: “Specialist types of lending such as invoice finance can alleviate these pressures by allowing businesses to borrow against the value of their invoices helping them to avoid payment delays and improve cashflow.

“Thorough credit checks on customers and setting out clear payment terms at the outset of any relationship will also help.”

According to Lloyds, cashflow problems are more likely to be experienced by businesses in Gloucestershire and Oxfordshire (23%) while businesses in the South West of England are least likely (8%).

The report also found that 37% of businesses said a fall in demand for products and services also resulted in cashflow difficulties, while 31% said customer default resulted in cashflow problems.

Lloyds added that 1500 firms responded to its latest Business in Britain report in April 2015. The data was collated by research consultancy BDRC Continental, which found 65% of the responses came from businesses with an annual turnover below £10m; 10% of responses were from businesses with an annual turnover between £10m and under £15m; and 25% of the responses came from businesses with an annual turnover of over £15m.