Half of SMEs turn down contracts due to unreasonable demands

A study of 501 businesses shows how almost half of SME’S turn down contracts and orders due to unreasonable demands.

Almost half of small and medium enterprises have turned down a contract or order due to not being able to deliver the work, new research reveals.

The study, from Hitachi Capital Invoice Finance, shows how ‘unfair reasons’ are the predominant cause for SME’S having to say no to paid work.

This includes how the contract would not pay enough, or it was priced too cheaply (25 per cent), a lack of management time and the customer known to be a bad payer (24 per cent) or that they were offered unfair payment terms (23 per cent).

Of 501 business owners surveyed, half (50 per cent) have lost out on up to £10,000 in the past year due to rejecting contracts, with initial ‘start-up’ businesses at the most risk. A quarter (28 per cent) have lost between £20,00 and £30,000 by doing so.

Outlook remains positive however, with a majority of companies (60 per cent) agreeing they don’t think that Brexit will impact on them rejecting more, or acquiring less work in the years ahead. An even higher percentage (66 per cent) have not had to invest personal funds into their business in the past 12 months.

Andy Dodd, managing director at Hitachi Capital Invoice Finance, comments, ‘SME’s are unfortunately having to decline contracts and orders due to unfair payment terms and unreasonable asks, not because they can’t deliver the work. Bad payers and unrealistic contractual terms can have a huge impact on any business, especially those that are relatively small or in start-up.

‘This is often part of a wider problem, not all business owners have the time and resource to chase up invoices or can risk working with an unreliable supplier. Our research from November last year found that 27 per cent of SMEs are in ‘survival mode’ with investment plans on hold, highlighting how SME’s simply cannot afford to be turning down work, which more than half are currently doing.’

Andy adds, ‘Our credit control services takes away the worry for the small business owner allowing them to focus on bringing in revenue by taking on new contracts. They can also choose to release cash from their invoices allowing them to invest the money back in to the business. It’s important that SME’s are made aware of the solutions available to them, so they can take on new contracts and stop turning work down unnecessarily.’

The research also shows that Retail and Wholesale businesses appear to be the ‘healthiest’, as they are less likely to turn away work.

Businesses in Yorkshire are least likely to turn down contracts and orders, though it is the region that loses out on more money than the average by doing so. For example, nearly 40 per cent of them lost out between £30,001 and £100,000.

Companies in Northern Ireland turn down the most work, with only 21 per cent who can claim not to have turned down a contract.

Further reading on contracts

Owen Gough, SmallBusiness UK

Owen Gough

Owen was a reporter for Bonhill Group plc writing across the Smallbusiness.co.uk and Growthbusiness.co.uk titles before moving on to be a Digital Technology reporter for the Express.co.uk.

Related Topics