2023’s SMEs urgently need cash flow tools

Ben Coventry
Head of Sales

We’re living in a unique moment in history. Technology-wise, it’s never been so bright. But economically, things aren’t so great. Rising interest rates, heavy inflation and an environment of austerity makes life difficult for small and medium enterprises (SMEs). Tellingly, more than 60% of UK firms cited the “domestic economy” as their greatest challenge while another survey found 40% of small businesses listing inflation as their main concern. Inflation is especially painful, because you’ve got less cash coming in and more going out. It’s understandable why so many SMEs are anxious. 15% of US firms expect their revenues to decline over the rest of 2023. 

One of the major problems is the soaring price of materials, forced upwards by high inflation, global shortages, and the war in Ukraine. 92% of UK businesses report higher costs compared to last year, with utilities causing the most financial pain. Among the worst hit were construction firms, accounting for 18% of insolvencies in March 2023. The challenging environment is making it increasingly difficult for SMEs to stay afloat. 

Building on my predictions from earlier in the year, here’s how SMEs have been responding to the dire need for cash flow in 2023 so far. 

2023 has squeezed cash flow – hard

Rubbing salt into the wound, firms are also waiting longer than ever to get the money they’re owed. As of May 2023, 55% are still waiting on invoice payments from 2022, leaving them with dangerously little liquidity. This is similar to what we predicted at the beginning of the year, and it seems to only be getting worse. As of April 2023, just 25% of UK businesses say that their cash flow has improved, while 30% have suffered a decrease. Hospitality was the worst hit, with 47% reporting a drop in cash flow. 

Unfortunately, one late payment often sets off a domino-effect of late payments down the supply chain. It can also mean that SMEs must resort to expensive debt to make ends meet. A study by the Federation of Small Businesses found that firms who get paid late are twice as likely to take out credit as those who don’t. 

At the start of the year, we recognised the urgent need for faster payments. Throughout 2023, we have seen it in action. 

Fintech (and BNPL) to the rescue

Getting a hold on cash flow is crucial for SMEs as they move into starvation mode. But there is hope. Easy access to B2B finance has leapt to the rescue over the past nine months. Services like Hokodo’s B2B BNPL solution mean that merchants get paid instantly, without compromising the payment terms of their buyers. 

Better still, BNPL repayments are interest-free. In a world where business loans are charging upwards of 10% APR, this represents significant savings. It could even be the difference between boom and bankruptcy. After all, around one in five small businesses are concerned that they will not be able to meet repayments from traditional banks. 

It’s little surprise that the number of small businesses taking out B2B BNPL rose sharply in 2023. April research from Marqeta found that 32% of European SMEs have used BNPL. And 43% used it at least once within three months of answering the survey. Today, that figure is probably significantly higher.

Flexible finance can make life easier for business owners 

Undoubtedly, there is a need for quick and accessible B2B financing. Today, just 37% of small businesses describe the process of securing traditional finance as “easy”. And when time is money, every efficiency counts. In my predictions earlier this year, I highlighted how the stresses related to debt and poor cash flow have been shown to impact business owners. Indeed, a study from earlier this year revealed that financial worries are the most anxiety-inducing issue for these individuals. 

Cash flow tools like BNPL can help to make the lives of business owners as easy as possible. Giving firms more flexibility can enable them to buy the materials they need, make regular payments or invest in better equipment, ultimately helping them to realise their full potential.

Missed our 2023 predictions? Check them out here.

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