One in five small businesses fell into their overdrafts last year

A worrying number of small businesses rely on their overdraft to manage their cash flow as late payments and uncertainty bite

Almost one in five small businesses have struggled with no cash in the bank, according to new research by Fluidly. The survey of 19,799 companies found that those having to use their overdrafts rose from 13.9pc in March 2019 to 17.8pc in January 2020.

Late payments, Brexit and economic uncertainty appear to be taking their toll as many businesses went into their overdrafts in nine of the 11 months tracked.

Plymouth was the worst-hit region at 35.7pc, followed by Southampton (34.3pc) and Peterborough, where around a third of businesses (32.8pc) have had to resort to their overdraft to survive.

RegionCompanies in overdraft at the end of the month (pc)
Milton Keynes26.1pc

>See also: What are the best alternatives to a business overdraft?

Food and drink makers (34.7pc), product manufacturers (33.3pc) and farmers (32.6pc) have fared the worst over that 11-month period. This suggests that sectors investing large amounts upfront are suffering more.

IndustryCompanies in overdraft at end of month by industry (pc)
Food and drink manufacturers34.7pc
Product manufacturers33.3pc
Farmers (agriculture)32.6pc
Post and telecommunications31.7pc
Motor sales and repair31.3pc
Retail and trade30.8pc
Land transport30.4pc
Hotels and restaurants30pc
Travel agents29pc

Last month, research from the Federation of Small Businesses (FSB) found that a growing proportion of finance applications (37pc) were being driven by cash flow concerns; however, 40pc of business owners said that the funding options available to them were ‘unaffordable’. Their study also uncovered that the share of small business finance applications that were approved fell in Q4 2019 from 71pc to 63pc.

Previous finding show that £20bn of late payments are outstanding and that businesses spend around 1,300 hours a year chasing debt, causing an ever greater deal of concern.

Caroline Plumb OBE, founder and CEO of Fluidly, said: “Business owners are no doubt being caused sleepless nights by concerns around making payroll, paying suppliers or tax bills and chasing late payments, let alone whether they can invest in growth.

“An estimated 50,000 businesses go under each year due to late payments, costing the economy £2.5bn. How many of these ‘failures’ are avoidable? If the rising number of businesses with no cash in the bank goes unchecked, tens of thousands more will go under.”

Fluidly’s app, which is free to search and integrates with cloud accounting packages including Xero and Intuit QuickBooks, is designed to help small businesses that typically reach a cashflow crunch and act in haste, perhaps securing the wrong type of financial product at the wrong price. 

Instead, by identifying when companies will need extra cash in the bank, Fluidly matches businesses with relevant products from a carefully curated range of financial providers within two minutes. Fluidly is working with leading lenders, to ensure businesses are presented with competitive options for their financing needs.

Available to both businesses and accountants, the new service, which is easy to use and fully regulated by the Financial Conduct Authority (FCA), will allow businesses to secure offers from lenders in just two days, ensuring they make considered decisions. Carrying out a no-obligation, free of charge, search for funding options has no impact on business’ credit ratings.

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Anna Jordan

Anna is Senior Reporter, covering topics affecting SMEs such as grant funding, managing employees and the day-to-day running of a business.