According to the latest Global Business Monitor, managing cash flow, collecting payment from customers and dealing with bad debt remain significant challenges for many U.S. small and medium-sized enterprises (SMEs) even as they remain upbeat on the state of the economy and the outlook for their businesses. The survey of 150 U.S. SMEs confirmed much of what we are seeing and hearing on the ground every day from SME owners across industries and around the country. While SMES are cautiously positive about their prospects for next year, they are mindful of the many obstacles that may come their way, especially during times of economic uncertainty. Their ability to tap growth opportunities while navigating these ongoing challenges will not only determine the state of their individual businesses, but also the overall health of the SME sector and its critical role in the U.S. economy.
U.S. SMEs struggle to manage cash flow
Nearly one-third of SMEs (31%) expect cash flow management to be among their biggest challenges in the coming year. This concern is compounded by issues surrounding collecting payment from customers on time, which 41 percent of SMEs cite as the most challenging aspect of managing their cash flow. Inconsistent or uncertain payment schedules can limit their ability to efficiently manage business operations and impacts business growth.
Even with those legitimate concerns, U.S. SMEs benefit from more favorable payment situations than their counterparts in other countries, according to the Global Business Monitor, which also surveyed SMEs in Canada, the Czech Republic, France, Germany, Hong Kong, the Republic of Ireland, the Netherlands, Poland, Singapore and the UK. On average, U.S. businesses wait fewer days for payments than any other country. In contrast to more than 45 days in both France and Singapore, U.S. SMEs wait just 23.5 days for payment from customers, the fastest payment turnaround of any country surveyed for the second consecutive year.
Additionally, the study found that U.S. businesses are slightly less likely to suffer from bad debt. Twenty-five percent say they have suffered from bad debt over the past 12 months, compared with the study average of a third (33%). Of those businesses that have suffered from bad debt, the average sum written-off stands at $73,000. The highest proportion of SMEs (24%) were unable to recover between $2,001 – $5,000. Whether large or small, bad debt represents the loss of funds that could otherwise be used to support business needs and growth.
While concerned about cash flow and payment, even more U.S. SMEs cite government regulation (49%) and rising overheads/costs (48%) as their biggest challenges both currently and in the year ahead. In that regard, U.S. businesses are almost evenly split on whether they view government policy as favorable (44%) or unfavorable (45%).
U.S. SME’s confidence remains high
Despite the challenges, U.S. SMEs remain generally upbeat about the economy. Sixty-seven percent of SMEs describe the current U.S. economic performance as positive, up significantly from 50 percent in 2016. Three-quarters of SMEs expect robust performance to continue or improve further in the coming year, that optimism translates into a positive outlook for businesses. Sixty-three percent expect sales to grow over the next 12 months. With confidence high and markets competitive, 61 percent of SMEs are investing in growth by investing more spend on sales and marketing. Half or more are also investing in training and development of existing staff (55%), IT and digital technology (54%) and recruitment (50%).
With an easing of monetary policy from the Federal Reserve in recent months, two-thirds (66%) of SMEs are anticipating little or no impact on their business if interest rates were to increase again.
In order to fund their businesses, one quarter (25%) of SMEs currently make use of external finance, up slightly from over a fifth (22%) in 2016. Almost half (49%) believe that access to finance in the current market is excellent or good, ranking the U.S. in the top three markets in relation to the availability of finance (alongside Canada and Singapore). Despite this, less than one in ten (8%) anticipate seeking additional external finance over the next 12 months.
Heading into next year
SMEs are significant drivers of the U.S. economy as they account for over 99 percent of registered U.S. businesses, according to the latest U.S. Census. It is important to understand their outlook on the state of business as a barometer to the entire economy. From what we gathered this year, U.S. SMEs are going to continue confidently investing at home in 2018, despite a degree of political uncertainty. However, we know U.S. SMEs will need to navigate payment and cashflow challenges, government regulations and rising overhead costs to remain competitive in the world’s largest economy and finding a good provider to help will be the key to long-term success.
Ian Watson, Chief Executive Officer of North America at Bibby Financial Services
Mr. Watson has been Chief Executive Officer of Bibby Financial Services North America since July 14, 2016. He joined the North America team after previously serving for more than six years as the Chief Executive Officer of the Asia-Pacific region at Bibby Financial Services. In this position he helped grow Bibby Financial Services’ presence in the region from two to six countries, led the executive boards of the businesses in Australia, New Zealand, Singapore, Hong Kong, Malaysia and India, and increased revenues from the region by nearly three times previous levels to deliver a profitable contribution to the group.
A senior executive with extensive international experience in commercial finance and asset based lending, Mr. Watson has a proven track record working with growing international organizations and serving on corporate boards.