Working capital and the living wage

With news of Chancellor George Osborne’s living wage filtering down to businesses across the country, many are now setting about reviewing their own pay practices.

As of 2020, the year Osborne predicts Great Britain will be debt-free, the new minimum wage for over 25-year-olds will be £9. This is of course good news for workers, but what does it mean for small and medium enterprises, who will see their outgoings increase overnight? The thousands of SMEs who work with Tungsten will no doubt be asking that very question.

Predictions of a flourishing economy over the next five years should hopefully mean businesses will be able to absorb the costs in the long term, but in the short term finances will need to be carefully managed.

Businesses in the retail, hospitality and caregiving sector in particular will have to closely watch their cash flow, as these have highly labour-intensive business models and their employees often require cash up front.

This funding gap, faced by many SMEs, is a real problem for businesses looking to grow, and unfortunately Osborne didn’t make any announcements to patch the hole. Figures from the Bank of England continue to show that accessing traditional bank funding, in the form of loans with set repayment terms, is a struggle.

The government’s Small Business, Enterprise and Employment Act is in the process of bringing about change in how banks handle loan applicants. When a bank is unable to offer funding, the new law states that business owners should be given details of alternative sources.

However, the details of how this process is to be managed are yet to be ironed out, meaning businesses are at risk of being passed from pillar to post without any real answers and could end up losing faith in the idea of funding themselves towards growth altogether.

In the meantime, it is up to innovative organisations like Tungsten Network to shout about how we can help SMEs better manage their cash flow with Early Payment on invoices. Technology is paving the way for businesses to take control of their own financial futures, at the touch of a button.

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