Eurozone crisis starts to bite for small firms

Data from Western Union show that businesses are increasingly shifting payments to the end of the month as they hoard cash and wait for better exchange rates, reports The Telegraph.

In the first quarter of 2012, an average of 31 per cent more currency exchanges were made during the last five days of the month than those made over the first five days, more than double the level the company considers normal.

David Sear, chief operating officer of Western Union Business Solutions, also noted the average transaction value in the company’s payments business had shrunk in the first quarter. “There’s a reluctance to place large orders. Companies don’t want to hold inventory because they don’t know where the market will be. There are also longer periods of time between customers trading.

“The reticence in the marketplace in itself lowers economy activity, and if things pick up, firms won’t be able to meet demand because they have no [stock].”

Small businesses have also been hit by Spanish banks “pulling credit” from their customers, according to Anil Stocker, co-founder of online invoice finance company Market Invoice.

“Where UK firms are sourcing goods from Spanish manufacturers, previously payment terms of 30 days after the goods were delivered were the norm. Now Spanish manufacturers are asking for 30 per cent upfront, with the balance of 70 per cent to be paid instantly on the arrival of the goods,” he said.

Mr Sear said there had been a “surge” in small firms forward-booking exchange deals for the first time to lock in prices.

Ewart Cox, managing director of Assentech, a £1m turnover importer of safety equipment for oil terminals, has started forward-booking euros: “It means we have a bit more control over the volatility – we got bitten before.”

He said it’s “essential” for his business that the euro survives. “All of our suppliers are outside the UK. A set of loose currencies would be a lot more volatile for us to manage – the costs would escalate significantly.”

Mr Sear added that some exporters were “losing confidence”. “You’ve got to feel sorry for them – they were the great hope for the economy. Now the dynamics are against them.”

However, Philip King of the Institute of Credit Management said the impact on small companies has been surprisingly modest so far: “I get a sense of plenty of nervousness and some focus being applied to Greek debts where they’re on open account terms but not as much real impact as I’d expect,” he said.