SMEs suffer from lower demand and late payment

5 November 2012

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5 November 2012 | Anna Reynolds

Both domestic and export orders among British SME manufacturers fell in the three months to October, according to The latest SME Trends Survey published by the CBI.

The quarterly survey of 362 UK-based SMEs found total new orders fell by 13 per cent, with smaller manufacturers struggling to sell their goods overseas as export orders dropped by 21 per cent, at the fastest pace since July 2009.

Other factors likely to limit export orders over the next three months were problems with meeting delivery dates and political conditions abroad. Optimism on export prospects for the year ahead fell for the second quarter running, by 18 per cent.

According to Robert Downes, policy adviser at the Forum of Private Business, late payment remains one of the “single biggest barriers to small businesses”. Downes said: “Banks failure to lend has really only exacerbated the problem with SMEs unable to borrow to offset their cash flow issues. It’s becoming something of a perfect storm and one that is causing firms to fail.”

The CBI report found production fell by 9 per cent over the period analysed, but is expected to increase by 5 per cent over the next three months. SMEs reported employment figures were unchanged for October, but job cuts are forecast in the coming months.

Lucy Armstrong, chair of the CBI SME council, said: “Small and medium-sized manufacturers will be disappointed by the slide in demand during this quarter.

“Production levels have fallen for the second quarter running and profit margins continue to be squeezed, as output price inflation fails to match growth in costs.”

The average unit cost of a product rose by 10 per cent and firms’ investment intentions for 2013 remained negative on both buildings (down 6 per cent) and machinery (down 3 per cent). This was however an improvement on the previous survey (down 20 per cent and down 13 per cent respectively).

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