Colin Borland, head of external affairs for the Federation of Small Businesses in Scotland, said: “It’s tough out there, and it’s getting tougher. That’s what we’re hearing across Scotland.”
Mr Borland was speaking to The Herald yesterday as the latest analysis by Big Four accounting firm KPMG revealed that small businesses in Scotland were bearing the brunt of the insolvencies.
He said the dire economic climate was exacerbated because legislation in the Companies Act (Scotland) relating to the time firms can take to pay for services and goods was generally unenforced.
“The biggest issue is cash flow,” said Mr Borland. “Either firms are doing work and not getting paid or customers are just not coming through the door. Councils are still extremely slow to pay, but the worst offenders are large PLCs.
“The irony is that there is already legislation in place, but Companies House doesn’t have the resources to ensure these laws are anything but a work of fiction.
“The result is that small businesses are using their savings and credit cards to stay afloat, and many of them have simply reached the end.”
KPMG’s latest analysis of the Scottish corporate insolvency figures reveals a 33% jump to 303 liquidations, which typically affect smaller companies, between the third quarter of 2011 and the same period in 2010.
Liquidations rose 6% , compared with the second quarter.
Data last month revealed the total number of Scottish corporate insolvency appointments rose by 29% to 345 during July, August and September, compared with 268 in same quarter in 2010.
Data from PwC show UK retail insolvencies soared by 12% year-on-year in the third quarter, with 410 retailers hitting the buffers.
On top of the cash-flow and
economic woes, small businesses have been hit particularly hard, in a downturn characterised by the near-impossibility of getting affordable loans.
Mr Borland added: “There is no flexibility in financing. Bank loans have become much more expensive.”
The embattled SME sector accounts for more than half of the UK’s gross domestic product and employs more than 13 million people. The credit vice, which tightened in 2008, continues to threaten millions of livelihoods.
While SMEs face the same tougher borrowing and declining consumer spending that afflict all business, larger firms typically have more options to raise money. At the same time, smaller businesses tend to be more vulnerable because they depended more on financing.
More than their big rivals, SMEs struggle as clients fall behind with payments, which can be a matter of life and death as banks grow increasingly stringent.
Official data last week revealed that the number of bank loans approved for SMEs plunged by around 26% between 2007 and 2010.
Blair Nimmo, head of restructuring at KPMG in Scotland, said: “There is clearly a lack of confidence among the consumer and the corporate. This is no surprise in the context of inflation, unemployment, low or non-existent annual salary increments, property prices, lack of finance and public-sector cuts.
“The best we can hope for is a slow recovery.”