Cash is king for UK SMEs looking to successfully navigate 2016

Demand for cash flow finance is on the rise, as more UK SMEs turn to alternative finance providers. However, only businesses able to produce accurate financial forecasts and learn from historic trends will succeed in 2016, say experts at Hitachi Capital Invoice Finance. 

shutterstock_306588455Analysis of the firm’s funding data illustrates an increased appetite for finance, with the total credit offered to businesses in the tax year commencing April 2015 totalling £841million, up from £823million the previous year. Lending figures also show three clear peaks in demand from SMEs for funding increases, with the number of applications rising significantly in April, July and October on an annual basis.

John Atkinson, head of commercial business at Hitachi Capital Invoice Finance said: “Business activity in 2016 is likely to be impacted by a number of external factors, in what is set to be a volatile landscape for political and legislative change. Many of our customers have found it necessary to pursue alternative routes to finance, as banks look to reduce the risk profile of their lending portfolios. In general, the days of firms using an overdraft facility as a ‘stop-gap’ to ride out cash flow disruption are over, businesses must act now to produce accurate forecasts for the year ahead.”

April, while traditionally hailing the beginning of the new tax year and with it a wave of new government legislation, could be an especially turbulent period for SMEs. The introduction of the National Living Wage will prompt an increased wage bill for many businesses; a high proportion of which are still bridging the transition into pension auto-enrolment.

April also hails the implementation of new immigration laws which will prevent employees earning less that £35,000 per annum from staying in the UK for more than 5 years.  Commentators predict that this change will exacerbate the current UK skills shortage and could lead to increased recruitment costs for firms looking to hire and retain talented staff.

John Atkinson continues: “When forecasting activity and productivity during the summer months, the impact of the holiday season must be acknowledged. Often, a depleted workforce during July and August can have a negative effect on business continuity, with limited trading activity and the reduced ability to chase prompt payment denting cash flow.”

Perhaps surprisingly, the most pronounced rise in demand for cash flow finance occurs during the month of October, as businesses gear up to capitalise on emerging contract opportunities. While this period typically yields an increase in deals activity within the corporate arena, it is also a busy time for retailers that invest in stock in preparation for inflated sales during Black Friday and in the run up to Christmas. For many businesses, the beginning of Q4 signals a time to invest and plan for the year ahead.

John Atkinson added: “It is vital that SMEs pay close attention to their working capital during 2016 and retain the agility to react to market changes. The possibility of an EU referendum, which is due to be held as early as June, alongside expected rises in interest rates could impact business confidence. For firms that manage to protect cash flow, either organically or via the securing of external finance, success, stability and growth await.”

Click here to view the Hitachi Calendar Flow Infographic