Accountants warn UK engine of recovery is running out of oil

Aug. 31, 2010 - PRLog -- Accountants have warned that the worst effects of the recession have yet to hit SMEs, jeopardizing the UK’s economic recovery.

The annual Credit Check survey from Venture Finance and Accountancy Magazine indicates that almost two thirds (60%) of accountants believe that a further increase in SME insolvencies is still to come. Respondents predict that 10% of their clients will soon be insolvent.


The recessions long tail
The survey of 250 UK accountants reveals that despite the economy’s tentative return to growth, over a third of SMEs (36%) are still being held back by the ‘long tail’ of the recession, performing worse in Q2 2010 than in the same period in 2009. 1 in 3 accountants now classify UK business strength as weak or very weak.

Peter Ewen, Managing Director, Venture Finance commented: “SMEs are the engine of economic recovery but the research suggests that they are still struggling to access the finance needed to move from a survival mentality to one of growth. Accountants are telling us that traditional financing methods are not meeting today’s business needs and it is essential SMEs understand the full repertoire of funding they can access.”


A working capital time bomb
The majority (60%) of respondents believe that their clients are currently focused on stabilizing performance rather than growth (25%). They also report that more than a quarter (27%) of UK SMEs are shrinking and some even dying due to a lack of working capital. 25% have been labeled as ‘exceeding their working capital’ with almost a fifth (18%) at risk of overtrading.

Moreover, 70% of accountants forecast that the upturn will not come before cash availability improves for the sector. Yet 80% report that their clients have lost faith in traditional finance sources. But all is not lost, as most accountants believe there is a ready solution for their clients’ working capital constraints, with 53% reporting that Invoice and Asset Based Lending is now the most effective form of financing to support SME growth.

“It’s reassuring that accountants are increasingly recommending Invoice and Asset Based Lending and we have certainly seen an increase in enquiries over the past year. Given the resounding advocacy demonstrated by accountants within the research we expect this trend to accelerate even further.

With ongoing economic uncertainty and an increase in VAT looming, any SME that’s planning for growth needs to meet the market from a position of strength. Invoice and Asset Based Lending is a sustainable source of funding that automatically grows in line with a business’s sales ledger, providing the liquidity needed to take advantage of opportunities without putting itself at risk. Coupled with Bad Debt Protection, which offers peace of mind against customer insolvency, this will enable SMEs to confidently move towards growth, refueling the economy as a whole”, added Ewen.


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About the research

The Credit Check is Venture Finance’s fourth annual survey of UK accountants, designed to obtain their view on the issues facing businesses. This year Venture Finance teamed up with Accountancy Magazine to conduct the research, which surveyed 250 accountants.


Further Information
For more information, or an interview with Peter Ewen, Managing Director at Venture Finance please contact:

Toby Brown, Lauren Greatorex or Clare Granville at Man Bites Dog
01273 716 820
venture@manbitesdog.biz

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Venture Finance is an award-winning premier independent Invoice and Asset Based Lender, established in 1989. Venture was the first independent invoice financier to offer Asset Based Lending (ABL) in the UK in 1990 and was the first authorised independent invoice financier to provide both the Government’s Small Firms Loan Guarantee Scheme and the new and improved Enterprise Finance Guarantee scheme.

Venture Finance made over £3billion of payments to clients in 2009, providing consistent support, through 200+ staff in 11 regional offices.

Factoring and Invoice Discounting are core services for the business. They both release ongoing working capital back into client businesses, based on the value of outstanding invoices and other assets. Both can be combined with Bad Debt Protection to shield against unpaid invoices.