Call for action as cashflow crunches hit 9 out of 10 small business

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Call to adopt the term ‘unapproved debt’ to encourage large firms to make punctual payments

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ew research has laid bare the extent to which UK small businesses are suffering from cashflow problems, leading to a call for government action from a leading accountancy software provider.

Xero Small Business Insights and Accenture undertook a study which found the average UK small business faces a “cashflow crunch” — when monthly revenues are not enough to cover outgoings — for more than four months of each year.

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The problem often relates to late payments and in the wake of Covid-19 is one of the main constraints on growth.

“We’re seeing big businesses purposely withholding cash from their small customers. We must move away from calling it ‘late payments’ which legitimises poor practice and lacks urgency. It’s time we labeled this ‘unapproved debt’.”said Alex von Schirmeister, Xero’s managing director for Europe, the Middle East and Africa.

“Given the steady post-pandemic resurgence in cash flow issues that we’re seeing in the UK, we urge the government to help,”

The research found around 23% of small businesses hit a cashflow crunch for more than six months of each year, while 94% did so at least once on 2021. Hospitality businesses bore the brunt of the problem, as the impact of Covid-19 restrictions was felt across the sector. It meant the proportion of firms in the sector with negative cashflow peaked at 54% in July 2020.

“There must be appropriate incentives for large businesses to pay their suppliers on time, and stricter penalties when it comes to paying late,” added von Schirmeister.

“Larger companies have been let off the hook for too long. Just imagine how economically productive our small business economy could be without the toil and stress of chasing payments.”

The research was unveiled at Xerocon London, a conference and networking event for small business event being held today and tomorrow at Tobacco Dock in Wapping. It used data from Xero as well as publicly available information and some estimates from Accenture.


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