The Financial Obstacles Facing SMEs - Some Hope From the FCA?
SMEs form the economic backbone of almost every economy in the world.
In the UK, a company is defined as being an SME if it meets two out of three criteria: it has a turnover of less than £25m, it has fewer than 250 employees, it has gross assets of less than £12.5m.
The Department for Business Innovation and Skills has estimated that 99.3% of UK private sector businesses were SMEs, with their £1.6 trillion annual turnover accounting for 47% of private sector turnover.
Despite their self-evident value to the UK economy, SMEs face huge financial challenges, and successive Governments have failed to adequately address these.
The major challenges are:
- Cash Flow, in other words delayed payment for services and/or goods supplied in good faith under contract; and
- An SME’s relationship with its Bank; and
- Recourse to a legal remedy.
Looking at these in turn:
- Delayed, or even no payment, is a fact of life for many SMEs and can restrict growth, or even cause voluntary or involuntary liquidation.
- Most SMEs have an uneasy relationship with their Bank, the playing field is uneven, to put it mildly. This makes it hard for them to e.g. “carry on” whilst being forced to wait for payment. In some cases, the Bank might “move the goalposts” (Remember the RBS “GRG” scandal which horrified the House of Commons Treasury Select Committee to such an extent that it forced the publication of the Financial Conduct Authority’s investigation)? https://www.parliament.uk/business/committees/committees-a-z/commons-select/treasury-committee/news-parliament-2017/rbs-global-restructuring-group-s166-report-17-19/ The Committee’s Chair, Mrs Morgan commented: “We have today published the terms of reference for our inquiry into SME finance. We’ll examine what must change to prevent what occurred at GRG from ever happening again, and how to restore confidence among SMEs in banks as a source of finance.”
- Until recently, there were few practical remedies available to SMEs: Arbitration (which has not proved either quick or successful), or Court Proceedings (which can be expensive, risky and suck valuable management time out of the business).
So, has anything changed to help the SMEs? Well, a little.
The FCA has announced that the Financial Ombudsman Service will, from 1 April 2019, be able to entertain complaints from many more SMEs than so far (an additional 210,000 according to the FCA), and award higher levels of compensation which will keep pace with inflation. https://www.fca.org.uk/news/press-releases/fca-confirms-increase-financial-ombudsman-service-award-limit
However, the FOS remains an organisation set up to help consumers, not companies. Also, this “improvement” will only help SMEs which have a complaint about the way they have been treated by their Bank. So, it goes some way to address point “2” above, but not “1” or “3”.
If you are an SME and have any of the problems referred to here, then we should love to hear from you. We can offer a no obligation initial consultation and have plenty of experience in this area. We are also cost effective and fast.