The typical small business loses money for one third of the year, according to research.
And nearly a quarter (23 per cent) has higher monthly outgoings than revenues for more than six months a year, a study by consultancy Accenture and accounting software provider Xero has found.
In fact 94 per cent of small businesses have at least one month when their costs exceed their income, which means their business loses money.
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Researchers looked at money coming in and out of the accounts of 200,000 small businesses with annual revenues of less than £6.5m that used Xero software in the UK as well as in Australia and New Zealand last year.
Rachael Powell, chief customer officer at Xero, said: “The report reveals just how persistent and systemic these cash flow challenges are for small businesses. Healthy cash flow is essential to a thriving business, yet our research shows that the vast majority of small businesses are having cash flow issues at least once a year.”
Unapproved debt
The research also found that 55 per cent of large organisations have been paying their small business suppliers later than the agreed payment terms in the last 12 months.
This is despite 78 per cent knowing full well the impact this could have on the suppliers’ business.
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Large companies cited inaccurate invoice details as the main reason for payments to small businesses being made late, followed by it being company policy to prioritise paying larger suppliers first, plus it was a conscious decision for larger businesses to conserve cash.
More than four in five large businesses would consider paying suppliers on time if “late payments” was renamed as “unapproved debt”.
Eight-two per cent of small businesses believe that government needs to do more to tackle the issue, despite being the main perpetrator itself.
Alex von Schirmeister, a managing director at Xero, said: “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 labelled this ‘unapproved debt’.
“There must be appropriate incentives for large businesses to pay their suppliers on time, and stricter penalties when it comes to paying late to prevent further cash flow instability. 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.”
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