Cash flow crisis affects new business

By Simon Willis
Newsnight Scotland

Mr Dignan has problems getting credit as his business is so new

When we started following four new businesses based in the Scottish Highlands last year, we knew they'd be in for a tough time.

That's why we called this occasional series "Born In A Storm".

So far, the start-up firms have proved a valuable method of keeping tabs on the economy at a grass roots level.

We identified the reluctance of banks to lend early on.

And we spotted emerging problems as Highlands and Islands Enterprise (HIE) handed over many of its responsibilities to local authorities.

What next?

Now we've asked them to assess last week's budget. What does it mean for them?

The answer was short, sharp and universal. None of our firms reported seeing anything in the budget of practical value to them.

What emerged instead is the flip-side of the cash flow crisis we have already reported.

We've heard how large firms seem to be delaying payment as long as possible, leaving some of our firms wondering when their invoices will be settled.

David Dignan, who runs Dignan Technical Services, explains that suppliers increasingly see small, new firms as bad risks. And this means they won't extend credit.

Mr Forsyth says late payments can be remedied by renegotiating deals

David understands why. "There's probably a very high percentage of new businesses that fail within the first year to 18 months, so therefore I'm in the high risk category."

A small firm needing some machinery for a specific job will have to pay up front, but might then find their customer delays settling their invoice for several months.

Without deep pockets to see them through the cash flow gap, potentially profitable small firms can go under. Fortunately, Dignan Technical Services is finding a way through.

Is there anything to be done about the cash flow crisis? Business advisor Ian Forsyth, of Development Partners, suggests going back to basics.

He advises looking for a different supplier who might give credit to get your business.

He says business owners faced with a late paying customer should consider walking away from the deal if necessary, or renegotiating.

"It's the basic principles", he says. "Just make sure you apply them as rigorously as possible."

Watch Simon's report on Newsnight Scotland on BBC Two Scotland at 2300 BST on Tuesday 5 May.