Cash flow has quietly become one of the biggest struggles for UK businesses, not because they aren’t making sales, but because the system isn’t working like it used to.
Research from the Chartered Institute of Credit Management (CICM) shows that 82% of SMEs have experienced cash flow problems, with many coming across issues multiple times a year. For a growing number of businesses, this isn’t a one off crisis, it’s part of their annual routine.
But why are so many SMEs finding it harder to stay liquid? And what has changed in recent years?
A funding market with more choice but less clarity
For decades, business lending in the UK was relatively simple. But over the past few years, the landscape has become much more difficult to manage.
“There are more lenders than ever before, and while that’s created more options, it’s also created enormous noise,” says Declan Burton-Clark, Founder at Supplier Finance Specialists Plutus Business Finance. “Business owners are being bombarded with offers, but have no reliable way of knowing whether they’re looking at the right product, from the right lender, at a fair price..”
And it’s true. There are now hundreds of lenders on the market, between fintechs, challenger banks and specialist lenders. Whilst this undoubtedly provides more choice, it has also fragmented the market. Instead of one trusted relationship, SMEs are now having to navigate a crowded space filled with competing offers.
“What’s essentially happened here is that you’ve replaced a model where someone understood your business with one where a lot of people are trying to sell you something,” Burton-Clark adds. “What’s missing is someone giving you a straight answer.”
The pressure is building from all sides
At the same time, the world is becoming more unpredictable as the months roll on.
Late payments affect more than a third of SMEs, at the same time, imports and exports are becoming more unpredictable against geopolitical changes that affect transport routes and tariffs.
And, as inflation increases, supplier costs are on the up at the same time that businesses are feeling a tax squeeze. Meanwhile, lenders, who want to be more cautious, have tightened their criteria.
“It’s not that businesses aren’t performing,” says Burton-Clark. “Many of them are performing well. It’s just that the environment they’re operating in is more expensive and less predictable than it was three years ago.”
The result? A growing number of businesses look healthy on paper, but are coming up against huge liquidity issues.
Where cash flow actually breaks
For most businesses, the issue comes down to timing.
The gap between paying suppliers and getting paid by customers – often called the ‘trade cycle gap’ – is one of the biggest pressure points. For importers, that gap can be six months or more.
“If you’re buying stock upfront and selling on 60 or 90-day payment terms, that gap compounds every time you place a new order,” says Burton-Clark. “On top of that are key VAT and tax payments that land periodically, businesses that trade well all year can hit a wall when a quarterly VAT bill lands alongside a supplier payment.”
For many businesses, it’s a vicious cycle.
Who is most at risk?
While cash flow challenges are experienced by many companies of all sizes, some businesses are more vulnerable than others.
Importers buying from overseas suppliers and selling to UK retailers on long payment terms are the most at risk. For them, the cash gap is the widest, with buying and selling often months apart.
Seasonal businesses face similar pressures, just in more concentrated bursts.
And when it comes to growing businesses, it can be hard to balance investing in new stock, scaling and actually bringing revenue back into the business. But if businesses can’t grow, that becomes a huge economic problem.
Short-term fixes are still the norm
Despite how common these challenges are, most SMEs are still relying on short-term funding options to see them through.
According to the CICM research, more than half try to stay afloat by cutting costs or taking out short-term loans, while only a small percentage turn to longer-term options like invoice finance or outsourced credit control.
According to Burton-Clark, that’s part of the problem.
“A lot of businesses are using products that don’t match how they trade,” he says. “They’re solving a short-term issue, but not addressing the underlying structure of their cash flow.
“What they need are financial products that are designed around how they work. Only then will businesses really be able to break out of this viscous cycle”
SMEs should approach funding in the right way
As more businesses face cashflow issues, the important thing is not just accessing capital, but accessing it in the right way.
That means understanding how their cash flow actually works, and structuring finance around that rather than buying into generic products and loans.
At Plutus, Burton-Clark says the focus is on creating a process that mirrors how companies actually trade.
“It’s about giving businesses one point of contact, straight answers, and a structure that fits how they actually operate,” he says. “Once that’s in place, everything becomes a lot easier to manage.”
For UK SMEs, cash flow may be a constant challenge. But as the market continues to grow and evolve, the companies that survive will be the ones that cut out the noise and find funding options that actually reflect how they trade.
