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22 Nov 2010

Chasing late payments proves the most effective recession strategy

Cashing late payments  (Photo credit: wwarby)

Cashing late payments (Photo credit: wwarby)

Speeding up late payments is the most effective strategy for small firms in dealing with the recession, according to the Quarterly Survey of Small Business in Britain by The Open University Business School, Barclays and ACCA.

Businesses in Britain have been implementing a number of different strategies in an attempt to deal with the effects of the economic climate. Speeding up late payments is the most effective strategy for small firms in dealing with the recession, with 42% of small firms indicating that this had proved to be the most effective way to bolster their cash flow. However, for the very smallest firms, chasing up payments was less successful. The owners of these firms were more likely to be cutting their personal drawings and salaries in order to survive the downturn.

Some have chosen bolder strategies, with 28% of firms reporting a move into new markets or business areas. These are likely to include a focus on exporting, which has become more attractive, with the depreciation of sterling and the continuing growth of some emerging markets creating new opportunities. Firms that rate themselves as more entrepreneurial are much more likely to have taken the initiative and moved into new markets or business areas (41%), as compared to less than one in ten (9%) of the least entrepreneurial firms.

There were two distinct approaches to marketing and promotion, with 23% of firms increasing spend in an attempt to gain market share, while 20% have cut marketing and promotional budgets. More entrepreneurial firms are also much more likely to have invested in marketing and promotion (35%), compared to less entrepreneurial firms (12%). Firms with 20 or more employees also tend to be more expansionary, with more than twice as many (35%) increasing their marketing efforts as compared to those who have cut these budgets (16%).

Professor James Fleck, Dean of The Open University Business School said, “The economic climate is still presents the biggest problems facing small businesses. It is all too tempting to batten down, cut back on investment and focusing efforts on a smaller leaner business offering. However the results from our survey clearly show that by taking an aggressive stance like chasing late payment and increasing marketing spend can bolster business performance and insulate against these external effects and provide a stronger platform for the recovery.”

Andrew Leck, head of ACCA UK says: “Late payment has a knock on effect for all involved in the finance chain, often with disastrous effects. Chasing down money is a task SMEs can ill afford to do – they don’t have a finance team or support system to help them do this. Bad payment practices can have a multitude of effects: if suppliers are forced out of business the late paying company can harm both its reputation and its relationships with other suppliers. There is therefore a real onus on companies to adopt fair payment and sound credit management practices.”

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