Anxiety, depression & banks behaving as ‘SME slaughterhouses’

The IAB, the leading professional body for bookkeepers, surveyed more than 200 of its members, many of whom run their own businesses and count among their clients SMEs from across a range of sectors and from around the UK.

“Bookkeepers can often be closer to the day-to-day financial affairs of small businesses than the owners and directors,” said Malcolm Trotter, Chief Executive of the IAB. “As such, they are perfectly placed to observe and comment on the impact of late payment on SMEs.”

More than half said they had noticed late payments causing cash flow problems for their clients in the past year.

“Among the examples of problems caused, our members cited their clients’ inability to pay their own bills on time, increased use of credit cards for short term finance, having to arrange expensive overdrafts and directors and business owners not drawing a salary,” said Malcolm Trotter.

“But perhaps most worryingly, some of our members reported clients suffering from anxiety and depression as a result of the cash flow pressures brought to bear on their businesses through late payments.”

One respondent to the survey explained how one of their clients came very close to insolvency as their customers, mainly large well known corporations, pushed payment dates back further and further – with one paying at 90 days.

Respondents added that complex purchasing systems used by large organisations were also delaying payments.

Almost a third of IAB members surveyed also reported clients seeking alternatives to the big banks for sources of finance as they sought to alleviate cash flow issues brought on by late payments.

“Friends and family, Government loan schemes, factoring and invoice finance companies, short term loans from directors and dipping into personal savings are all sources SMEs are turning to for funds, rather than approach the big banks,” said Malcolm Trotter.

“It is clear that a lot of them regard the banks as enemies rather than allies in business, with high interest rates and what are seen as unreasonable covenant agreements hindering smaller concerns.”

One respondent to the IAB survey commented: “Most of the facilities offered (by the banks) are not considering the company’s cash flow. If one defaults, they do not give them a chance, a lifeline, but they immediately pass their cases to the legal department, who hire debt collectors and then bailiffs. In this way the SMEs are killed. For the SME, Banks are slaughterhouses.”

Malcolm Trotter added: “While SMEs are helping to drive the recovery, our survey shows they are still finding many obstacles in their way.

“Until the larger companies and corporates stop considering delaying payment as a legitimate business practice, and unless the banks become more SME friendly, the country’s small businesses will continue to face a tough, uphill struggle to grow and succeed.”