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Late-paying customers cripple cash flow

Majority of small and medium businesses grappling with cash flow problems due in large part to late-paying customers

September 26, 2012

Many small and medium sized enterprises are grappling with cash flow issues due in large part to late-paying customers, and the situation is not expected to improve.

A survey from Bibby Financial Services shows 83 percent of businesses this past year have attributed most of their problems to slack customers not settling their accounts, prompting 23 percent having to write off bills as bad debt.

The number of small businesses facing difficult cash flow circumstances has grown to 6 percent to 49 percent in the past six months.

“The majority (83%) of business decision makers have experienced cash flow issues in the past year, most commonly because customers make excuses for slow payments (41%),” the survey states.

Other major cash flow issues experienced include trouble getting payment from large companies or government departments (25%) and issues with government red tape, compliance and tax administration (24%).”

Expectations for the year ahead remain gloomy, the survey says, with 77 percent of businesses concerned about customers becoming insolvent in the coming year.

The survey found 43 percent predict the time they must wait to be paid to increase further in the coming quarter, and about half are more concerned about global economic conditions than they were a year ago.

“Only 17 percent of companies are doing credit checks on new customers, which is a concern. Credit checks are an inexpensive way of reducing the chance of bad debts,” Bibby Director Gary Green says.

The survey shows 32 percent of businesses have dealt with customers wanting to negotiate to pay in monthly instalments, while 21 percent had difficulty meeting tax payments on time.

Green says 21 percent of businesses surveyed refused to take on more work until accounts were settled, while 17 percent resorted to using debt collection firms or lawyers to chase their money.

Green says most businesses surveyed have put strategies in place to help manage their cash flow.

“Some businesses put in place advance warning systems, including conducting cash flow forecasts (27 percent) or periodic cash flow health checks with their accountants or advisers (19 percent),” he says.

The most common methods of dealing with gaps in cash flow ranged from getting an overdraft or increasing an existing one, while 27 percent of respondents listed dipping into their personal finances as an option.

Conducted in mid-August 2012 and the third of its kind, Bibby’s study surveys primary decision makers in over 200 non-retail small and medium businesses.

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