Manufacturing News

Average South West SME is owed £75,270 in outstanding invoices

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Written by: Tim Lincoln | Posted 25 January 2016 11:30

Average South West SME is owed £75,270 in outstanding invoices
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The average small and medium sized business in the South West is owed more than £75,270 in outstanding invoices.

That figure is a sharp in increase of 29 per cent in two years, according to the latest Lloyds Bank Commercial Banking Business in Britain research.

The problem is likely to get worse during 2016, with 29 per cent of small businesses expecting more of their customers to demand deferred payment terms in the next six months, the research found.

The research also found that South West businesses own an average of almost £426,872 of assets against which they could borrow to fund growth, again a huge 179 per cent increase on 2014, when SMEs owned an average of £153,063 in assets.

Together, the figures suggest that a lack of understanding of alternative funding options could be holding smaller firms back.

Richard Evans, area director for the South West at Lloyds Bank, Global Transaction Banking, said: “29 per cent of businesses in the South West told us that late payments were affecting their cashflow, and with the amount of money owed them in unpaid invoices, it’s not surprising.

“Yet having this volume of unpaid invoices – just like having thousands tied up in physical assets – needn’t prevent firms from having working capital to invest in growth.

“Different types of funding such as invoice finance or asset-based lending can help unlock the working capital that they need, allowing businesses to grasp more of the opportunities that exist at the moment.

“Failing to take advantage of these types of funding, on the other hand, could be seriously holding them back, affecting not only their growth, but for many firms, potentially stunting the the growth of the entire supply chain beneath them.”

The research also found:

* Around a fifth (22 per cent) of SMEs admit to having cashflow problems (2014: 20 per cent)

* 29 per cent said that late payment was the biggest cause of cashflow difficulties. A further 14 per cent blamed a fall in customer demand.

* Nearly a fifth of businesses (18 per cent) are owed £200,000 (2014: 14 per cent)

* Firms own more than four fifths (82 per cent) of their assets outright (2014: 69 per cent)

Richard added: “Unless businesses in the South West look at ways to unlock the value tied up in these assets, both they and the UK economy overall are likely to be held back.”

He thinks more firms which turnover more than £1 million annually should be using options such as invoice financing, where they borrow against unpaid invoices, or asset based lending, which unlocks the value tied up in stock, plant, machinery or property, to fund faster growth.

Independent brewery Arbor Ales is using such methods to fund its growth.

After increasing sales by 20 per cent in two years, the company secured a six figure funding package from Lloyds through the Regional Growth Fund to finance a move to bigger premises in Easton, Bristol.

The company also borrowed against its assets to help it ramp up production.

Co-owner Jon Comer said: “Since moving we have also been able to invest in new machinery, which will speed up the production process significantly.”

Pictured: Lloyds Bank relationship manager Will Kite and Arbor Ales co-owner Jon Comer toast the brewer's move to new premises in Bristol

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