SMEs face lean cashflow months

A study by Hitachi Capital Finance has revealed that the UK’s small businesses can expect three tough periods in 2016 when cashflow will be restricted.

According to their report, which has been put together using data from its small business customers, April, July and October are likely to be lean months where cash reserves are low and little business is coming in.

This, they point out, could prove challenging, especially considering that banks are withdrawing business overdrafts at a rate of £5 million per day.

The toughest month of the year is likely to be April as the new National Living Wage is introduced alongside a raft of other new legislation, which may push up compliance costs for some businesses.

New immigration laws also come into force in April that prevent employees who earn less than £35,000 from staying in the UK for more than five years, which may lead to increased recruitment costs and the loss of productive workforce members.

The start of the school holidays in July will also mean that many SMEs will experience a depleted workforce, which according to Hitachi Capital Finance will not only affect trading, but also a business’s ability to chase invoices and outstanding payments.

October will see increased stock investment in the run-up to Christmas. Traditionally, some businesses would use their overdrafts to fund the busy period, but with banks slowly withdrawing these facilities to meet tightening rules over the amount of capital they have to hold relative to the amount they promise to lend, companies may struggle to fund this period without outside finance.

John Atkinson, Head of Commercial Business at Hitachi Capital Invoice Finance said: “Business activity in 2016 is likely to be impacted by a number of external factors in what is set to be a volatile landscape for political and legislative change.

“Many of our customers have found it necessary to pursue alternative routes to finance, as banks look to reduce the risk profile of their lending portfolios. In general, the days of firms using an overdraft facility as a ‘stop-gap’ to ride out cash flow disruption are over, businesses must act now to produce accurate forecasts for the year ahead.”

Link: Hitachi cashflow study