SMEs out perform Q2 expectations

Barclaycard Payments’ quarterly SME Barometer has indicated that small and medium businesses (SMEs) have exceeded their revenue predictions for Quarter 2 (Q2).

At the start of April, SMEs predicted a 28 per cent decline for the quarter, but now that Q2 is in the books, the research reveals the average reported loss of 14 per cent was less severe than predicted.

Stronger-than-expected Q2 performance has led to a boost in optimism, with index scores jumping from 79 out of a possible 200 points at the start of Q2, to 95 points at the start of Q3. This is also reflected in business outlook – 36 per cent of SMEs report a positive outlook for their own business this quarter, up from 21 per cent in Q2. Across all sectors, SMEs predict a five per cent increase in revenue for Q3 compared to Q2, which grows to 14 per cent over the next 12 months.

Sectors that rely on consumer card payments, such as hospitality and leisure, were hit particularly hard in Q2, and many were not able to re-open safely until the start of Q3. Fortunately, these sectors appear to be recovering well – Barclaycard SME transaction data for the first half of Q3 has shown consistent week-on-week growth, and the average daily transaction value has risen by 60 per cent compared to the daily average for Q2*. However, card transactions for the first half of Q3 remain 13 per cent behind the same point last year*, indicating card-taking SMEs have a way to go to match their pre-pandemic performance.

The percentage of SMEs reporting coronavirus negatively impacted their business has dropped this quarter, falling from 82 per cent in Q2 to 74 per cent this quarter. While the pandemic continues to cause disruptions, with 60 per cent of SMEs expecting it to have a significant impact until at least the end of September, the future looks more positive – that number drops to just 13 per cent by this time next year.

SMEs are also proactive in their own recovery – 80 per cent plan to invest over the next 12 months, with new equipment & technology (32 per cent) and marketing (28 per cent) the greatest focus.

Rob Cameron, CEO, Barclays Payments, said, “SMEs are once again proving their resilience and securing their role at the heart of the UK economy, especially in the face of the challenges posed by coronavirus. Despite uncertainty and business disruption, SMEs are outperforming their own revenue expectations and beginning to look to the future by returning to work and thinking about investment.”

“We welcome these signs of growth and optimism – and hope that SMEs continue to take advantage of the support available, whether from finance partners or the Government, in order to continue this recovery.”

The biggest change SMEs have implemented to mitigate the effects of coronavirus is reducing staff numbers (26 per cent), which rises to 47 per cent amongst medium businesses.

The top benefit of coronavirus reported by SMEs was also related to staffing – with a third (33 per cent) welcoming the opportunity to improve remote working capabilities.

Many SMEs can see life returning to how it was before coronavirus, with 42 per cent expecting a return to ‘normal’ at some point, and a further 31 per cent saying that the reason they won’t return to normal is because they have made small changes and improvements that they intend to keep.

Similarly, many SMEs have already started to return to their offices, with 21 per cent reporting that employees worked on the premises throughout lockdown, while 22 per cent began encouraging a safe return to work when easing began in July. Just over one in ten (11 per cent) have revealed they will be moving to a permanent working-from-home model and not asking employees to return to the office.

Emma Jones, founder of Enterprise Nation, said “We’ve seen SMEs begin to emerge from lockdown in a place of strength – a huge testament to their resilience and their willingness to seek and take advice. It’s heartening to know that the Government support measures and resources have helped our nation’s small businesses during the pandemic.”

“At Enterprise Nation, we’ve offered different types of support for SMEs at various stages of their journey, such as our Make a Plan diagnostic tool. We are hopeful that SMEs will continue to push through these challenging times and keep playing a role as the heart of the UK economy.”

Commenting on the news Edward Thorne, UK Managing Director at Dun & Bradstreet said “SMEs are the engine of the UK economy, making up the majority of the UK’s private sector, so it’s great to see the survey results today suggest they are outperforming expectations this quarter and feel more optimistic after what’s been a whirlwind six months. But there are still challenging times ahead and the latest data from Dun & Bradstreet suggests that payment performance is worsening as the UK falls into a recession, which could be bad news for smaller businesses.”

“Our trade payment data shows the percentage of bills paid on time has dropped since March, from a UK-wide average of 47.2% to 42.6%, signalling a worsening trend. Late payments critically affect the health of a business; UK companies spend 56.4 million hours looking for overdue payments and a survey commissioned by Dun & Bradstreet found that nearly half of SME respondents felt that overdue payments put their business at risk of failure.”

“With the Government’s furlough scheme concluding and the end of the Brexit transition period getting closer, it’s a crucial time for SMEs to have full visibility of their business relationships to effectively manage their cash flow and assess the effect of the pandemic on their future growth. By using data and predictive analytics to gain a detailed understanding of the previous payment behaviour of customers and a view of future performance, businesses can mitigate the potential impact that late payments can have on their cash flow and plan accordingly.”