40% of businesses are currently facing over £10,000 in unpaid invoices (1)
Solvency a concern for small businesses as 1 in 4 worry they won’t survive into 2021
UK faces a trade credit crunch as customers seek longer payment terms and suppliers look to cut them, while the sector deals with backlog of unpaid invoices
This comes as iwoca launch ‘iwocaPay’ to give confidence back to businesses grappling with the fall out of the pandemic
The coronavirus pandemic is creating a trade credit crunch as many businesses face considerable unpaid invoices leading as many as 1 in 4 to doubt they will survive into 2021, according to a new report released by iwoca.
The research, published in Levelling the ‘paying’ field, by one of Europe’s largest small business lenders, explores how payment terms were managed pre and post-pandemic and sets out a series of recommendations which policymakers and small businesses should prioritise in the months ahead.
As non-essential shops open next week, the mounting pressures on small businesses are leading as many as a third of owners (who offered payment terms) to consider reducing or not offering trade credit in the future as they try to minimize their exposure to unpaid invoices (2). A fall in access to trade credit, which according to the SME Finance Monitor over a third (37%) of businesses use, could have significant consequences for small businesses who rely on it and the wider sector (3).
The findings come as iwoca also launches a new product that will help businesses navigate the crisis - iwocaPay. The tool can take the risk out of payment terms and give confidence back to businesses offering trade credit. iwocaPay gives customers a choice over when they make repayments, allowing them to choose payment terms of up to 90 days. At the same time, suppliers will be paid immediately through iwoca. Addressing the needs of both business customers and suppliers will help improve cash flow and give greater confidence to small businesses as they return to work in the coming weeks and months.
The main elements creating the trade credit crunch include:
Christoph Rieche, co-founder and CEO of iwoca said: “What’s emerging is a concerning game of ‘tug of war’ between small businesses as they look to survive and plan for the future. Buyers can’t pay their invoices because they don’t have the revenues and sellers are being asked to provide longer payment terms to ease the strain whilst already sitting on a growing backlog of unpaid invoices.
“Coronavirus can and should help trigger a step-change for small businesses to become more efficient, productive and resilient. We believe the first and most obvious change is to make payment terms fairer between suppliers and customers.”
Mike Luxford, founder of MLCS, a cloud-based internet phone system provider (VoIP) added: “The first thing I thought when this all started [the pandemic] was, we won’t get paid. When you're a small business, that’s when the issues start. And it’s a knock on effect - if I’m not getting paid, it clogs up my credit accounts which means I can’t take on more contracts. I try to have some savings around so it’s not literally hand-to-mouth because if a silly little payment trips you up, you lose all your credibility. For that reason, if someone wants extended terms or huge amounts of credit for no reason, I tend to walk away. Otherwise it becomes a daft juggling game.”
1. 40% of businesses facing £10,000 in unpaid invoices refers to B2B only
2. A total of 537 small businesses were surveyed between 27/4/20 - 14/5/20
3. SME Finance Monitor Q4 2019 - March 2020