Some SMEs Performing Worse Now than in the Recession

More than a third of small firms performed worse in the second quarter of this year than in the same period in 2009, a survey by Accountancy Magazine has found.

The annual Credit Check survey of 250 accountants, produced by Venture Finance and Accountancy Magazine, revealed that small firms’ performance is being held back as they are struggling to access the finance they need to move from a “survival mentality to one of growth”.

The research also forecast that ten per cent of small firms currently trading will still go insolvent as a result of the recession.

“As we come out of the recession, if there’s not enough available finance to support business growth, there could be more insolvencies as a result,”

said Venture Finance managing director, Peter Ewen.

“There has been evidence in the last two recessions that more businesses fail as the recession ends,” he added. “The effects drag on because general demand has gone down so their business turnover’s decreased, and customers delay payments.”

The survey also highlighted that small businesses are turning to alternatives to traditional funding, such as invoice financing ? where a business receives an advance payment from their finance provider against the value of an outstanding invoice.

A recent survey by the National Association of Commercial Finance Brokers (NACFB) found that small firms’ use of invoice financing increased for the third year running in 2010 — and is now double what it was in 2007.

“The increase in invoice finance shows that brokers are looking for a cost-effective alternative for their clients, as overdraft limits are reduced but costs have increased,”

said NACFB chief executive, Adam Tyler.

Ewen added:

“Invoice financing and factoring is ideally suited to support those businesses’ growth as that type of finance grows with the business.

“Businesses should also remember that cash is king. They should make sure that customers pay quickly and that their invoicing process is clear to avoid disputes on invoices, to help make sure they collect their cash quickly.”

One third of small firms performing worse than in the recession

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