Half of UK SMEs turn to their overdrafts as seasonal peaks put pressure on cash flow, preventing 87% from taking on more orders.
- More than a quarter of SME revenue is driven by seasonal demand, representing £548b
- Half of SMEs increase their overdraft to manage cash flow constraints for seasonal demand
- Cash flow constraints prevent 87% of SMEs from taking on more orders
- Brexit: half of SMEs fear a fall in revenue and that finance will be harder to source
5th August 2019, London: UK SMEs trade all year round yet more than a quarter (27.4% or £548b) of their revenue is driven by seasonal peaks. The latest MarketInvoice Business Insights survey explores their preparedness and challenges in dealing with seasonal demand.
What is seasonal demand? This refers to peaks in business activity that correspond to various factors depending on the nature of the business. These factors can include seasons of the year and their weather-related changes, events like the summer school holidays and religious or cultural calendar events.
In fulfilling seasonal demand, businesses plan and prepare almost 15 weeks in advance to meet customer orders. They face several pressures in meeting this demand, chiefly having the staff to fulfil orders (23%) closely followed by paying their suppliers (22%). The survey also found that businesses are more likely to be selling to large corporate or blue-chip companies (72.5%) compared to other SMEs (27.5%). Additionally2, the typical invoice value of goods and services supplied in peak times is £47,203, for which they will be waiting, on average, 80 days to be paid.
Jonathan Allan, CMO at MarketInvoice, commented: “In meeting seasonal demands, businesses are preparing 3 months in advance and then waiting almost a further 3 months to get paid. It’s worrying to see them so stretched. Regular and significant peaks or troughs in revenue are tough to manage, but it’s possible to smooth the impact. Being prepared and using all the finance tools available is the key to managing seasonal demand.”
Despite feeling a cash flow squeeze, the majority of business owners (54%) are not checking their cash flow forecast on a regular basis, typically just monthly or quarterly. As a means of managing seasonal demand, almost half (48%) of business owners reported increasing their bank overdraft facilities and one in six (16%) used invoice finance to tackle the cash flow constraint.
Jennifer Thompson, Head of Finance at small business Crate Brewery commented: “Dealing with seasonal demand is a reality of our business and waiting on long payment terms hinders our cash flow. Using invoice finance helps but we are under a lot of pressure as a young and growing business”.
In fulfilling seasonal demands, 87% of businesses reported they were prevented from taking on more orders because of the cashflow constraint. Yet, two-thirds (67%) of business owners aren’t seeking any advice about seasonal spikes in trading. Of the businesses that are taking counsel, the majority (14%) are turning to their business bank manager for help.
Rashesh Joshi, Managing Director at Chartered Accountants, Alexander Rosse, commented: “At times of heightened activity, business owners must work hard to get their products and services to customers. However, it’s imperative they call upon their business advisers as early as possible for support and timely guidance in order to ensure the right financing solution can be found and they can prepare for long payment terms, dealing with cash flows and managing expectations. “
Canvassed on their views on the anticipated (deal or no deal) Brexit in October 2019, business owners felt that the economic environment would contract. More than half (51%) are anticipating a decrease in revenue over the next 12 months. Equally, more than half (53%) also believe finance options and credit terms will inevitably tighten around Brexit.
Jonathan Allan added: “Businesses are clearly nervous about the onset and impact of Brexit. It’s unchartered territory for many business owners. There will be an immediate adjustment across the economy, no doubt, as we prepare for the new trading environment. Ahead of this, business owners should be seeking advice from their accountants, lenders and bank managers to ensure they are best prepared for all scenarios. Meanwhile, it is essential that the new government reassures and encourages these small businesses who are the heartland of the UK economy, that the economic environment will be one they will prosper in”.
1 Research based on a survey of 1,000 business owners of UK Ltd companies (who are employ between 1 and 249 staff) between 19th July and 21st July 2019. Survey conducted by LM Research & Marketing Consultancy (Marketing Research Society approved partner and ESOMAR corporate member).
2 Based on MarketInvoice data of 21,466 invoices for seasonal trade between 2012-2018
£548b revenue figure based on combined annual turnover of SMEs as £2 trillion from Federation of Small Businesses UK Small Business Statistics (as per the Department for Business, Innovation & Skills figures).
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