Cash crises loom at a fifth of UK companies

Alan in Late payments | No Comments

“Battle-damaged by a year of recession and plagued by poor liquidity, the UK’s largest firms will be unable to respond to the economic upturn when it emerges”, new research by Roland Berger Strategy Consultants reveals today.

“Companies do not anticipate recovery until next year, but hit by poor turnover, an ongoing credit shortage, late-paying customers and pressure on interest cover, they will be unable to respond to the upturn for a further 6½ months after it commences.”

Yet again we see late payments as the cause of so many companies’ ills.

Roland Bergers Restructuring Survey 2009 also reveals that “firms are failing to control costs effectively in the face of these financial woes, and are dragging their feet over urgently needed restructuring.”

Controlling late payment with robust invoice chasing is key to business survival no mater the size of company.

Weak balance sheets

UK senior managers predict that their current lack of liquidity will put back their firms response to upturn by 6½ months on average. Approaching half (43%) fear that it will seriously damage their capability to capitalise on the recovery.

Nearly all (96%) firms involved in the study expect static or falling turnover in 2009 year on year, while alarmingly, over a fifth (22%) say they are on course for a cash crisis this year, with 17% at risk of insolvency.

However, UK firms are finding it difficult to improve their situation, as approaching half (43%) complain that poor liquidity is causing them to lose important business opportunities.

Cash control and efficient invoice chasing will help plug the liquidity gap.

Upturn not expected until mid 2010 the pain is set to continue, according to UK business leaders. Despite the reported emergence of green shoots, the vast majority (85%) do not expect recovery this year.

Over half of firms (57%) are not anticipating full upturn for at least another year from now, whilst the largest proportion - around a quarter (23%) - foresee recovery in Q3 of 2010.

Cash supplies running dry

Liquidity issues are being exacerbated by late paying customers and the ongoing difficult credit conditions.

Nearly all companies (94%) report a rise in late payment, and a similar proportion (95%) expect customer payment behaviour to worsen further in coming months.”

Wrong priorities and a lack of urgency

Despite complaining of poor finances, and not expecting recovery for some time, firms are still reluctant to place cost cutting at the very top of their agenda, and are dragging their feet when it comes to crucial restructuring initiatives.

Alarmingly, only 12% of firms are placing top priority on improving liquidity management moving forward.”

So many businesses’ problems seem to be their lack of control of late payers and by not controlling invoice chasing these unpaid invoices have a profound impact on their liquidity.

About the Study

The UK Restructuring Survey 2009 is based on interviews with a mix of board level decision makers (CxO level) and Financial Controllers at 100 of the UKs largest firms (turnover in excess of 250 million). This research forms part of an annual international study by Roland Berger Strategy Consultants the International Restructuring Survey 2009.

Roland Berger Strategy Consultants, founded in 1967, is one of the world’s leading strategy consultancies. With 36 offices in 25 countries, the company has successful operations in all major international markets. In 2008, it generated more than EUR 670 million in revenues with 2,100 employees. The strategy consultancy is an independent partnership exclusively owned by more than 180 Partners