Business insolvencies increasing due to cash shortage
The headline looks as though it's stating the obvious but it's serious - in the fourth quarter of last year there were 4620 businesses going belly-up, 7.2% more than the same quarter the year before - and the latest report from Bobby Financial Services, called the Business Factors Index, suggests that a lack of external funding is a major part of the problem.
The report, quoted in Business Matters magazine, suggests that 66% of businesses haven't applied for any outside funding in the last 12 months, preferring to use savings or personal overdrafts to pay for their company.
Only 4% of businesses had actually asked for any grant aid or other Government help. Whether they all assumed things were too tight or just didn't think to ask is beyond guessing. Bibby is using the data to push its invoice financing, which is when a small business submits its invoice to Bibby instead of the client and Bibby pays it immediately - minus a small commission.
This helps cash flow enormously and as long as there is enough give in the amount being charged it can be an excellent thing. External funding has its drawbacks, however. Only a couple of years ago the press gave Lord Sugar a roasting for his suggestion that assuming entitlement to a loan was bad business sense, and that businesspeople needed to be more self-sufficient.
In spite of the bad press he received he had a point. A lot of the financial issues in the economy at the moment are due to over-borrowing or lending to bad prospects. Even so, 4% sounds low - you do wonder whether such funding as the Government offers is actually being offered, as well as quite what pressure they're putting on the banks to start lending again.