News that supermarket giant Tesco has seen a 23.5% drop in profits in the first half of its financial year has raised an eyebrow amongst many business owners.
There is no question of Tesco not being able to pay its bills, having still recorded pre-tax profits of £1.39bn. But the challenging retail environment being blamed by Tesco is having serious repercussions on many British traders, for whom unpaid bills are a part of daily life.
In July, the London Evening Standard reported that councils in the capital were using bailiffs to collect unpaid business rates. The number of business rates debts had shot up in two years by more than a quarter, whilst one in six commercial premises in London received a court summons last year. Meanwhile, around £2.5bn is owed to the Government in VAT and HMRC has doubled its spending on debt collectors to almost £13m.
All of this backs up research last year by accountants and business advisers Baker Tilly, who found that almost a quarter of SMEs were unable to pay their short-term debts. They surveyed companies with sales of between £5m and £25m and found that 24% had insufficient funds to pay the bills. In addition many were struggling with dwindling margins, which in turn was depleting cash reserves. One of the dangers of this is that when the economy finally starts to recover, businesses will be left with insufficient cash flow to keep up, potentially leading to failure at a time they should be starting to thrive again.
So when working capital is so scarce, what can business do to maintain stability and generate growth?
Create a clear finance forecast and assess how short-term factors such as late payers, seasonal dips and pricing issues might affect your plan.
Release hidden capital
Consider your assets and see if any could be used even more effectively to raise cash. Could you, for example, sub-let spare office space in your premises?
Focus on credit control
You might not want to turn away new customers at any cost – but some might be more trouble than they are worth. Run a credit check on new clients and assess their ability to pay on time.
Agree sensible credit terms
If you have credit with your trade suppliers, make sure you settle on mutually agreeable terms. Over-stretching your own ability to pay could damage relations with your suppliers and impact on your credit rating.
Free up your cash flow
Using a service such as invoice factoring could release cash flow and get your business finance moving again. Factoring allows a business to pass on an unpaid invoice to a factoring company, receiving up to 90% of the debt upfront. The invoice factoring firm will then chase up payment, giving the outstanding balance – minus its fee – to the business once it’s paid. Simply Factoring Brokers can help you find the right factoring firm for your circumstances, resulting in the cash being in your account within 24 hours and leaving you free to get on with business!
0330 134 2826.