Getting cash owed to you is more vital than ever

Budget has heaped more pressure than ever on SMEs, says David AlexanderBudget has heaped more pressure than ever on SMEs, says David Alexander
Budget has heaped more pressure than ever on SMEs, says David Alexander
Budget fallout in 2025 could make trading conditions tougher than peak pandemic for SMEs

Corporate insolvencies in Scotland rose by 10 per cent year-on-year in the second quarter. Heading into a new year, and following one of the most anticipated Budget statements in recent memory, the Chancellor has stirred fresh concerns for SMEs. With high costs and tighter lending conditions, businesses face a threat that, in the space of a few months, could outstrip the economic fallout of the Covid-19 pandemic.

Among the pressures, the rise in employer National Insurance contributions from 13.8 per cent to 15 per cent stands out, likely intensifying cash flow challenges for already struggling businesses. Unlike the pandemic, when government-backed support packages like the Coronavirus Business Interruption Loan Scheme and Bounce Back Loans offered crucial lifelines, the current lack of such safety nets may result in heightened financial distress and increased insolvencies.

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The increase to the National Living Wage, though beneficial for employees, also places added financial strain on businesses that may already be struggling with narrow margins. In sectors like retail, hospitality, and tourism – significant employers and drivers of the Scottish economy – these pressures could be particularly damaging.

Don't let personal relationships get in the way of money owed being paid in a timely fashion (Picture: Adobe)Don't let personal relationships get in the way of money owed being paid in a timely fashion (Picture: Adobe)
Don't let personal relationships get in the way of money owed being paid in a timely fashion (Picture: Adobe)

Protecting cash flow, therefore, must become a priority for businesses of all sizes. As business owners are forced to tighten their belts, there will be difficult decisions to make in terms of which bills to pay in what order. For their suppliers, this is going to have a knock-on effect, potentially causing further financial challenges.

But there are some simple steps that business owners can take. Above all, firms will need to make sure that they collect payment of invoices sooner rather than later. This might mean reducing payment terms to weeks rather than months and increasing cash collection efforts to limit the burden of unpaid bills.

The threat, and sometimes use, of litigation is often another powerful tool in the armoury of a business owed monies and it looks likely that this is going to become more common. Having an independent third party to help resolve the issues between supplier and customer, have the difficult conversations, and potentially agree a payment plan can be incredibly useful.

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However, it is important to remember the interconnected nature of our economy. The business chasing payment will also have similar bills to pay, including wages, overheads and their own supply chain costs. Communication between businesses on both sides is crucial, but they must be careful not to let personal relationships get in the way of unpaid debts – even if the supplier has been friends with their customer for decades.

Even for the businesses that survived the storm of the pandemic reasonably unscathed, cash reserves will have taken a hit and there could be further turbulence ahead. The SMEs that can adapt and find solutions, whether that includes streamlining operations, reducing staff costs or changing contract terms, are likely to be the ones that come out on top.

David Alexander, head of debt recovery at full-service law firm Gilson Gray

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