Inaccessible funding could stunt growth & innovation, Ayming finds

22 May 2017 Consultancy.uk

The UK’s annual investment in small (SME) and medium (MSE) enterprises totals one of the lowest in the developed world, a new study from professional services firm Ayming has found. Further to this, while the UK remains one of the global centres of innovation, the document raises concerns that a wide range of UK and EU based funding sources, aimed at stimulating innovation, are not sufficiently advertised or have poorly constructed application procedures. The result is that small businesses which drive the UK’s economic growth lack the support to take risks, meaning the future economy as a whole misses out on valuable new methods and technologies.

As whole new environments are opened up by technological trends and advances, innovation remains a key driver of value creation. Thanks to small and nimble up-and-coming competitors seizing on this potential meanwhile, larger, better-established companies are forced to continuously re-evaluate and refurbish services of their own, as the new kids on the block create low-cost, high-impact propositions that disrupt whole industries – with the likes of Airbnb, Booking.com or Uber currently leading the charge against traditional industry staples.

The UK is no stranger to bolstering innovators with public funds, with UK scientists and engineers have managing to create ideas and devices that have become essential to modern life thanks to state support – with the world changing births of the light-switch and of modern computing both now taken for granted. Last year, London was named the globe’s best city for innovative startups (with a focus on the digital domain), and across the country dozens of innovation hubs have grown to maturity, becoming hotspots for entrepreneurs and breakthrough innovations.

However, a new report from Ayming, formerly Alma Consulting Group, has concluded that more can still be done to champion the next generation of great innovators. In the study exploring the UK’s overall innovation landscape Ayming’s paper more specifically examines how better matching between innovation spending in the UK with the ideas of SMEs and MSEs could lead to a better functioning marketplace as a whole.

GDP expenditure on R&D and innovation

Trailing competitors

A key finding of researchers was that when it comes to sheer spending, the UK trails other economies. As a share of total GDP, investment in innovation in the UK presently amounts to just 1.67%, well below the top spenders globally. Compared to the UK’s major economic counterparts, even while total gross expenditure remains relatively low in the continued atmosphere of post-crisis spending cuts, the proportion invested on innovators is low. Sound Korea for instance, invests as much as 4.5% of its GDP into innovation, while the EU28 average 2.02%, and the US spends an estimated 2.8%. Other commonly cited developed countries also outstrip the UK by a significant margin.

Passing comment on the UK’s surprisingly low ranking, with regards to investment in SME and MSEs, Martin Hook, Managing Director at Ayming stated, “We still linger embarrassingly at the bottom of the G8 when it comes to spending on research and development (R&D).”

In terms of value for money however, despite low spending, the UK remains one of the major contributors to innovation in the EU, ranking second after Switzerland in terms of total innovation impact. One major factor supporting innovation is the UK’s education system – which despite increasing financial pressures remains perceived as world class – while the UK government also provides a wide range of support mechanisms, including a range of tax credits, which have continued to stimulate UK innovation.

Despite performing poorly in terms of funding, the UK has therefore managed to keep its reputation as one of the most innovative countries globally, even while total gross expenditure as a share of GDP remains relatively low.

2014-15 investment by Innovate UK

Missing out

One of the major programmes that supports innovation in the UK is the in 2007 founded Innovate UK. Official figures published in March 2015 revealed that since 2007 the programme and its and private-sector partners have invested more than £3 billion in upwards of 5,000 companies. Across a range of programmes, this investment has generated at least £7 billion in value and created 35,000 new jobs.

The organisation is just one of the many means of securing funding for innovation and R&D in the UK, which exist alongside a wide range of EU based programmes, which likewise seek to stimulate innovation. Many of these programmes offer money that is relatively unconditional, giving many businesses a no-strings-attached opportunity to realise their potential. Surprisingly however, Ayming’s analysis suggests that many businesses are not taking advantage of these programmes.

According to the paper, there are a number of reasons as to why the wide range of available incentives and grants are being missed by business across the UK. One major barrier is the poor communication of EU based programmes about the possibilities available to UK businesses. This also applies to tax credits from the UK government, information about which is often not easy to understand. The application processes themselves are also plagued with heavy with jargon and require volumes of information via seemingly endless questions. While a considerable amount of money is available then, the system of bureaucratic hoops companies must jump through to obtain it makes the application process a logistical nightmare that often blocks companies from accessing assistance they need most, and putting many more off the process altogether.

Ayming’s researchers conclude that many organisations do not realise that their everyday activities may well already be considered innovative in relation to the criteria for tax credits, meaning that they are missing out on available support. Furthermore, many businesses – whose future existence depends on innovation – may be able to take the kinds of risks to be innovative if the available funding, and the procedures to acquire it, were made clearer by the institutions that provide for the availability of that funding.

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Late payment culture cripples productivity of SMEs

29 March 2019 Consultancy.uk

UK SMEs are seeing their efforts to grow stifled by late payments, causing thousands to enter insolvency proceedings each year. According to experts from Duff & Phelps, this also has a major impact on the UK’s economy, meaning late payment culture must be tackled if the country is to dodge yet more economic stagnation in the shadow of Brexit.

Small and mid-sized enterprises in the UK face a myriad of pressures at present. Brexit anxieties are keenly felt by SMEs, with more than nine in 10 suggesting recently that economic conditions have worsened in the last 12 months. 66% of SME leaders also expect conditions to further worsen in the coming year.

At the same time, firms are keen to see value for money from investing in external expertise. Consulting fees which weight much more heavily on smaller firms, who spend £60 billion per year on professional services, but feel that more than £12 billion of that figure is wasted on unnecessary or bad advice.

Late payment culture cripples productivity of SMEs

Above all, however, SMEs are extremely vulnerable to late payments, and, according to a new study, the situation is only getting worse at present. According to corporate rescue consultancy Duff & Phelps, small businesses in the UK are facing a collective bill of £6.7 billion per annum due to late payments by other companies, while the average value of each late payment now stands at £6,142. This has risen from £2.6 billion in 2017, illustrating the plight of SMEs, particularly with uncertain economic times ahead.

Indeed, the spike in late payments has already caused significant productivity issues for SMEs, which in turn compromises their financial stability. With staff wasting hours chasing down late payments and businesses becoming preoccupied with short-term cash flow problems, they are less able to concentrate on creating new value for the firm, which in many cases gradually slides toward insolvency.

Small businesses across the UK are facing major cash flow pressure, leading to increased financial instability as a direct result of a late payments culture. This is likely a big driver of the UK’s 20% boom in insolvencies over the last three years, especially as it has a knock-on effect on other SMEs within the supply chain of those struggling firms. Approximately 50,000 small businesses fail each year because of late payments, amounting to a shortfall of more than £2.5 billion for the UK economy. 

Commenting on the findings, Paul Williams, Managing Director, Duff & Phelps, said, “In this modern era of technology, which is designed to enable business agility, late payments are particularly galling as there are no excuses. The day of the ‘cheque is in the post’ is long over!... More can be done to avoid businesses reaching this situation in the first place. SMEs underpin the economy, so prioritising timely payments will help allow business owners to focus their time and energy on providing good quality products and services and adding value to the customer experience, rather than chasing outstanding payments.”

The UK Government currently promotes its voluntary Prompt Payment Code to encourage good practice, but late payments by larger companies remain a common pain point for many SMEs. There may be hope for an end to late payments, however, following an announcement in the Spring Statement from Chancellor Philip Hammond. The Government aims to crack down on the practice, with Hammond stating big companies should hire a Non-Executive Director to be responsible for reducing late payments to small suppliers. The statement also advises that organizations publish payment practices in their annual reports.