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Average UK SME does not have enough cash to cover debts due

The average UK SME does not have enough cash to cover debts due in the next year, says chartered accountant UHY Hacker Young.

According to its analysis of balance sheets of more than 13,500 SMEs, the average has only 95% of the cash (or other easily realisable assets) to pay those debts due in the next 12 months.

The ability to pay short-term debts out of cash or other short-term assets is seen as a key indicator of business health, especially in periods of financial stress such as the current coronavirus crisis.

With the coronavirus pandemic forcing many small businesses to temporarily close their doors or reduce sales, the cash flow crunch for the UK’s SMEs is only likely to get worse in the coming months.

The problem could be made worse if larger businesses slow their payment of invoices to their smaller suppliers. In recent days a number of large, well-capitalised multinationals have suggested that they will not pay their landlords.

The figures highlight the importance of the £330bn package of lending support for small businesses announced by Chancellor Rishi Sunak in mid-March.

Martin Jones, partner in UHY’s London office says: “It’s worrying to see British SMEs are struggling to pay their short-term debts already – coronavirus disruption is going to make the situation even worse over the coming weeks and months.

“A lot of SMEs have seen their incomes drop precipitously almost overnight. Cost-cutting isn’t going to fix the problem – many will need emergency support from the Government as well as swifter payments from their debtors to make it through this crisis.

“It’s crucial that Coronavirus Business Interruptions Loans are made available to businesses as fast as possible, with the minimum of bureaucracy and red tape. Banks often want to process SME loans through a lengthy underwriting process, but this situation is unprecedented. A huge volume of lending needs to get to UK small businesses in days, not weeks or months.”

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