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New research was undertaken by a leading professional services company, and the accounting software specialist Xero has made alarming discoveries on the subject of many firms’ tendency to lose money for much of the year.
Among those findings was that 94% of small businesses have at least one month during the typical year when their costs are higher than their income, meaning they are effectively shedding money.
In fact, the research found that the typical small firm loses money for a third of the year. Almost one in four (23%) small businesses have monthly outgoings higher than their revenues for more than six months a year.
“Persistent and systemic” challenges with cash flow for many small companies
The researchers scrutinised the money that entered and left the accounts of 200,000 small firms with annual revenues of below £6.5 million, and which made use of Xero software in the UK, Australia, and New Zealand during 2021.
Xero’s chief customer officer, Rachael Powell, commented: “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.”
Significant numbers of larger firms continue to pay their suppliers late
Another longstanding source of frustration for many small businesses is the difficulty of ensuring they get paid for their services provided to larger companies.
It is hardly encouraging news, then, that according to the Xero research, more than half (55%) of large organisations have been paying their small business suppliers later than the agreed payment terms in the last 12 months.
And yet, 78% of such firms admitted they knew full well the potential impact of this on the business of the supplier.
As for the reasons for small firms being paid late, the large businesses quizzed cited inaccurate invoice details as the primary factor. This was followed in the list by it being company policy to prioritise sending payments to larger suppliers first, and there was also evidence that large firms were making a conscious decision to conserve cash by not paying immediately.
More than four fifths of the large businesses questioned said that if “late payments” were renamed as “unapproved debt”, this would cause them to consider paying suppliers on time.
With regard to the small firms’ opinion on this issue, 82% of them said that the Government needed to put more effort into tackling the problem.
In the words of Alex von Schirmeister, a Xero managing director: “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.”
As for if your own firm would appreciate specialised and informed help with Xero in Newton Abbot, Plymouth, or Wellington to support your efforts to keep on top of your business’s finances, you are welcome to enquire to the Xero-certified TS Partners team today via phone or email.
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