The second annual C2FO working capital outlook survey showed that SMEs are still facing problems with late payments from their customers. While this issue isn’t new, it is causing significant damage to the integrity of the SME sector. Because of the limited availability of external financing, SMEs are reliant on cash flow from operations to fund their businesses.
C2FO, a working capital management technology company, surveyed more than 1,800 US and European SMEs. The survey found that late payment was significantly more prevalent in Europe than in the US. Worst affected were Italian SMEs with 50% of respondents experiencing delayed payment. In France, 27% experienced late payment from customers but in Germany just 18% were. In the UK 20% said they were paid late, up six percentage points from last year’s survey.
Conversely, the US had a different story with 14% of respondents saying that they were paid late, down from 20% the previous year.
The survey found that SMEs also have reduced access to funding at affordable interest rates. More than half (52%) said that they cannot secure financing at APRs below 8%, while more than 60% were concerned about how they fund long-term growth.
More than three-quarters (76%) of the SMEs surveyed are dependent on their own cash flow from operations to survive and grow. If the SMEs had access to more cash, 77% said they would invest in growth. Of that group, 29% would purchase more inventory or equipment, 20% would invest in new technologies, 12% in the workforce and 16% would expand operations. Only 15% of SMEs surveyed would use the improved liquidity to meet existing obligations such as payroll and supplier invoices.
Early payment programmes such as supply chain finance and customer use of procurement cards have had success at bridging the funding gap, with 20% of SMEs saying they had secured financing this way. Supply chain finance was especially popular in France, with 25% of companies using it as a means of funding. Three-quarters of respondents claimed that they would prefer to do business with companies that offer supplier-friendly early payment options.
Colin Sharp, SVP EMEA at C2FO said, “The increasing need for liquidity is pressing SMEs to pursue a variety of funding sources. However, as the large majority of SMEs still finance themselves with cash flow from operations, there is a significant opportunity for businesses to optimise working capital through better relationships with customers and better use of accounts receivables.”