New analysis reveals that a third of small businesses may not have enough cash to cover their costs when the government’s energy price cap ends on March 31st.
Experian analysed the finances of 1.16 million small businesses and forecasts that 30% of these will become ‘at heightened risk’ – meaning they may not have enough cash to absorb the energy price shock – once the current price cap ends. This would more than double the percentage of this sample which are currently ‘at heightened risk’, standing at just 13%.
The global information services company looked at cash balances, credit and debit turnover records using data from the Commercial Credit Data Sharing scheme, and calculated the monthly expenditure of these small businesses on energy using public data from ONS, Gov.uk, and BusinessView.
The estimated increase in monthly energy costs from April 2023 was subtracted from the account balance of these businesses to reveal those ‘at heightened risk’.
James McGarva, Managing Director, Information Services, Experian, said, “Businesses need to prepare for the April energy shock by building their financial foundations. Practice good cash flow management, understand the factors influencing your credit score, and give energy suppliers sufficient notice if you think you’ll struggle to make payments. The future looks daunting, but there are steps that can be taken to improve financial resilience.”
Liz Barclay, the Small Business Commissioner said, “These figures are very worrying. An added threat to the viability of small businesses is that many are struggling to get paid quickly by their bigger customers. If bigger firms are holding onto cash in case they need it for business critical expenditure, small suppliers can struggle to manage their cashflow and pay their energy and other bills while waiting. If energy bills go up again that could break the business. We need bigger customers to pay smaller suppliers as a priority to give them a fighting chance of survival.”
Experian analysis also found that although invoice payments over 30 days late has actually reduced by 11% year on year, sectors including retail, accommodation, and food has worsened.
Experian is a leader in business information services and can help industry and small businesses to navigate the economic turbulence ahead. Its small business services help owners to obtain the insight they need to strengthen their credit and risk status. Experian recently launched the Credit Review Service to help small businesses easily monitor their financial resilience, and quickly improve their business credit score with the addition of new, relevant information.
Meanwhile, its affordability assessments help suppliers to identify businesses that are struggling in advance, enabling them to implement proactive measures to tackle financial stress. Delphi for New Business was launched to help lenders make responsible and appropriate lending decisions.