The global cash flow crisis
Maintaining a healthy cash flow is absolutely crucial in business, but can be difficult for some companies. Larger companies are often able to use significant cash reserves, but small to medium-sized enterprises (SMEs) don’t always have that luxury, and those SMEs make up roughly 99% of businesses worldwide. That makes it all the more concerning that maintaining cash flow was one of the top 5 challenges facing US small business in 2017, as one survey indicated. Another grim figure is that 60% of failed businesses report that all or most of their failure was due to cash flow problems. With that said, it’s especially worth noting that late payments, a common cause of cash flow interruptions, are on the rise. As companies evaluate their year-end finances and move through the busy holiday season, it’s important to consider how quickly cash flow crunches can mount, and how they can be prevented.
Recent surveys have examined the construction industry’s cash flow woes, largely spurred by the recent collapse of UK construction firm, Carillion. The effects of their late invoice payments are still being felt by smaller contractors – the construction juggernaut still owes roughly 800 million pounds to its supply chain. The negative effects are variegated, but the worst has landed on the shoulders of small businesses like Flora-tec, a small landscaping company that was forced to lay off a significant portion of its 90-man workforce, primarily due to late invoice payments that would now never arrive. Some payments were as late as four months. One recent study found that nearly 75% of the 400 small construction businesses surveyed face severe financial challenges due to cash flow interruptions like late payments. But the issue isn’t limited to construction.
Seventy-three percent of all invoices sent by UK businesses to EU firms were paid late in 2017. That’s an increase of 40.4% over the prior year. A MarketInvoice study also found that 71% of the 80,000 U.S. invoices examined were overdue. The research also found drastic increases in the average time it takes to settle invoices for different countries. German firms took 28 days, and paid 62.8% of invoices late. French firms took 26 days to pay bills in 2017, a roughly 20-day increase from 2016. Worldwide, the trend for late payments isn’t good. A MarketInvoice spokesperson, Bilal Mahmood, noted that UK exporters are being squeezed globally by these late payments.
Cash flow is key to growth. As late payments become more common, small to medium-sized enterprises will suffer the most. It’s important for these businesses to devote time to forecasting cash flow trends—taking into account business spikes like the holiday season, and to re-evaluating customer relationships and invoice terms, to ensure too much time isn’t spent waiting for payment on goods and services. Now more than ever, small businesses need to shore up their cash flows and take steps to ensure they have working capital to maintain operations, and receive payments in a workable time frame.
Tungsten Network Early Payment
When payment terms are longer than desired, or when cash flow becomes a problem, alternative finance solutions are available as well, but high interest rates and convoluted applications can make these options less attractive. For businesses that are awaiting payment, Tungsten Network Early Payment can offer some reprieve. Through our partnerships with respected financial institutions, Early Payment can ensure that businesses get paid without delay. Rather than waiting 30, 60 or 90 days, Tungsten Network customers who have opted into Early Payment can receive payment for an outstanding invoice, minus a small charge, usually in one business day. Rather than putting things on hold, businesses can put capital to use immediately, in meeting day-to-day obligations or investing in new initiatives. After a quick, one-time enrolment on Tungsten Network, businesses can choose which invoices to submit for early payment at the click of a button, without all the paperwork that accompanies many alternative finance solutions.
Business environments can change rapidly, even in favourable markets. While no company can be 100% certain of the challenges it will face, the pragmatic approach is to prepare for these instances by taking control of the processes and opportunities it can offer. That means having the tools necessary to guarantee steady cash flow and remain flexible, so regardless of the obstacle, the path forward is clear.