Executive Briefings

Most Small, Medium-sized Businesses in UK Prefer to Leverage Cash Flow to Fund Growth, Study Finds

A majority of UK business owners find it too time-consuming or expensive to borrow cash from their bank, according to the Working Capital Outlook Survey from C2FO, a working capital exchange.

Most Small, Medium-sized Businesses in UK Prefer to Leverage Cash Flow to Fund Growth, Study Finds

The survey examined more than 400 UK SMEs' preferences for improving working capital efficiency, including trends associated with financing, working capital deployment and late payments.

Colin Sharp, senior vice president for EMEA at C2FO said, “Small businesses in the UK are evidently paying careful attention to their prospective customers’ payment terms, given high borrowing costs and an increasing reliance on efficient cash flow from their customers to fund operations and growth.” Sharp added, “Over a third of UK SMEs state that it’s too expensive to borrow, with a majority financing themselves with cash flow from operations.”

The Cost of Borrowing

According to those surveyed, only 30 percent of SMEs in the UK are able to borrow for an APR of under six percent (versus 50 percent in the US). Those in the financial services and insurance industry are borrowing at the highest rate, at an average of 7.2 percent.

The survey also shows that those companies finding it cheaper and easier to borrow tend to pay their suppliers more promptly.

Financing Business Growth

More than half of SMEs (61 percent) are increasingly concerned with their ability to finance long-term growth over short-term growth (39 percent) and over the past 12 months, 40 percent of UK SMEs experienced an increased need for working capital.

In order to access the working capital needed to fund business growth, many businesses have moved away from traditional forms of financing and are leveraging the cash flow from operations to fund their growth (59 percent).

Deploying Working Capital

With the appropriate access to working capital, most respondents say they would invest in funding growth (46 percent), purchase more inventory (23 percent) and meet existing obligations (20 percent).

For instance, over half (55 percent) of SMEs in the food and beverage industry stated that if they had access to more cash they would fund further growth. However, the same 55 percent say they find it too expensive to borrow from their bank, and a further 20 percent state that it is too inflexible and time consuming to obtain cash from other means. With 75 percent of the food and beverage industry finding it challenging to access working capital, the ability to fund growth relies on cash flow from operations.

Doing Business with Supplier-Friendly Buyers

In line with industry trends that indicate an ongoing concern over large corporates delaying supplier payments, over 10 percent of businesses claim their customers regularly pay invoices later than expected. Despite these findings, 39 percent of business owners indicated they would not feel comfortable directly asking their buyers for early payment.

When asked which type of payment options they might consider, 77 percent of businesses would prefer to have the ability to name their rate for early payment, depending on their company’s needs.

Colin Sharp continued: “There has been an increase in pressure from the UK government and across many UK industries to develop ethical payments services that aid supplier cash-flow and help build a more trusting and supplier-friendly supply chain. This has been a driving focus for us to deliver a market-based invoice discounting solution that allows buyers to work collaboratively with their suppliers.”

Source: C2FO

The survey examined more than 400 UK SMEs' preferences for improving working capital efficiency, including trends associated with financing, working capital deployment and late payments.

Colin Sharp, senior vice president for EMEA at C2FO said, “Small businesses in the UK are evidently paying careful attention to their prospective customers’ payment terms, given high borrowing costs and an increasing reliance on efficient cash flow from their customers to fund operations and growth.” Sharp added, “Over a third of UK SMEs state that it’s too expensive to borrow, with a majority financing themselves with cash flow from operations.”

The Cost of Borrowing

According to those surveyed, only 30 percent of SMEs in the UK are able to borrow for an APR of under six percent (versus 50 percent in the US). Those in the financial services and insurance industry are borrowing at the highest rate, at an average of 7.2 percent.

The survey also shows that those companies finding it cheaper and easier to borrow tend to pay their suppliers more promptly.

Financing Business Growth

More than half of SMEs (61 percent) are increasingly concerned with their ability to finance long-term growth over short-term growth (39 percent) and over the past 12 months, 40 percent of UK SMEs experienced an increased need for working capital.

In order to access the working capital needed to fund business growth, many businesses have moved away from traditional forms of financing and are leveraging the cash flow from operations to fund their growth (59 percent).

Deploying Working Capital

With the appropriate access to working capital, most respondents say they would invest in funding growth (46 percent), purchase more inventory (23 percent) and meet existing obligations (20 percent).

For instance, over half (55 percent) of SMEs in the food and beverage industry stated that if they had access to more cash they would fund further growth. However, the same 55 percent say they find it too expensive to borrow from their bank, and a further 20 percent state that it is too inflexible and time consuming to obtain cash from other means. With 75 percent of the food and beverage industry finding it challenging to access working capital, the ability to fund growth relies on cash flow from operations.

Doing Business with Supplier-Friendly Buyers

In line with industry trends that indicate an ongoing concern over large corporates delaying supplier payments, over 10 percent of businesses claim their customers regularly pay invoices later than expected. Despite these findings, 39 percent of business owners indicated they would not feel comfortable directly asking their buyers for early payment.

When asked which type of payment options they might consider, 77 percent of businesses would prefer to have the ability to name their rate for early payment, depending on their company’s needs.

Colin Sharp continued: “There has been an increase in pressure from the UK government and across many UK industries to develop ethical payments services that aid supplier cash-flow and help build a more trusting and supplier-friendly supply chain. This has been a driving focus for us to deliver a market-based invoice discounting solution that allows buyers to work collaboratively with their suppliers.”

Source: C2FO

Most Small, Medium-sized Businesses in UK Prefer to Leverage Cash Flow to Fund Growth, Study Finds