The UK’s largest business group is warning the worsening of a late payment “crisis”, high inflation and increasing red tape for smaller firms that trade internationally is creating a perfect storm at the start of 2022.
The Federation of Small Businesses (FSB) says the small and medium-sized enterprise (SME) community will further shrink unless these problems are tackled.
And it is urging the UK Government to “get serious” about helping those businesses struggling to make ends meet as costs surge.
Small firms are facing flashpoint after flashpoint.”
Mike Cherry, chairman, Federation of Small Businesses.
The bleak new year message coincides with FSB publishing the findings from its latest quarterly Small Business Index (SBI).
The study of more than 1,200 business owners found nearly one in three (30%) had seen late payment of invoices increase over the past three months, with a further 8% experiencing other forms of poor payment practice.
Almost one in 10 (8%) said late payments were threatening the viability of their business.
FSB’s headline UK SBI measure of confidence dropped to minus 8.5 in the final quarter of 2021.
The figure fell in every quarter of 2021, having stood at plus 27.3 in Q1.
More small firms now expect their performance to worsen over the coming three months, rather than improve.
Late payment was destroying thousands of small businesses even before the pandemic hit. The pandemic has made matters worse.”
FSB chairman Mike Cherry said: “The small business community diminished in size over the past year.
“Unless action is taken now to tackle the challenges it faces, history is set to repeat itself.
“After another frustrating festive season, small firms are facing flashpoint after flashpoint.
“Today, it’s a fresh wave of admin for importers and exporters – in three months’ time it will be a hike to the jobs tax that is national insurance contributions, a rise in dividend taxation, business rates bills and an increase in the National Living Wage.
“On top of that, operating costs are surging – many will soon be trying to strike energy deals without the clout of big corporates or the protections afforded to consumers.”
Mr Cherry warned the trend of weakening business confidence will continue unless the government acts now to reverse it.
Government figures show there are now around 5.5 million small businesses in the UK – about 400,000 fewer than before the Covid lockdowns.
FSB’s study suggests a similar number, about 440,000, may shut this year due to late payment alone.
Rising costs
The vast majority of SMEs surveyed – a seven-year high of 78% – reported costs were rising.
And with full import checks and rules of origin requirements now in place for firms that do business in the EU, the bulk (74%) of small exporting companies reported international sales were flat or fell during the past quarter.
Nearly one in four (38%) reported a decrease in exports.
Previous FSB research shows only a quarter of small importers are fully prepared for the new red tape.
Mr Cherry said: “Late payment was destroying thousands of small businesses even before the pandemic hit. The pandemic has made matters worse.
“In the past, the government has rightly identified greater board accountability as key to spurring change in this area, but delivery has been slow.”
“Policymakers need to understand late payment is the issue that keeps thousands of entrepreneurs up at night, and one that has worsened in lockstep with lockdowns.
“We need to see words turned to action.”
He added: “Every big UK corporation should have a non-executive director on its board with direct responsibility for payment culture.
“And every big business and government organisation should be abiding by the prompt payment code: 30-day payment terms are not a ‘nice-to-have’.
“They’re the norm for those who are committed to environmental, social and governance best practice.
“If this government is serious about levelling-up, it needs to get serious about helping community businesses struggling to make ends meet as costs surge.”
April’s tax increases are looking “increasingly misjudged” amid consumer nervousness about the Omicron variant, Mr Cherry said.
Brexit bureaucracy
He added: “The chancellor should look again at how to protect small firms from this fresh blow.”
On the new Brexit red tape, Mr Cherry said: “Small firms that do business internationally are usually among our most profitable and innovative.
“That’s why it’s so hard to watch so many becoming increasingly weighed down by bureaucracy.”
