Ian Duffy, CEO of Accelerated Payments

At the start of last year, small and medium-sized businesses in the United Kingdom continued to grapple with one of the most challenging periods in history. The COVID-19 pandemic raged while the Trade and Corporation Agreement (TCA) was brought in, introducing significant changes to the process of importing goods into the UK from the EU.

One year on, how are SMEs across the country dealing with these post-Brexit challenges, and what will we see over the year ahead?

Post-Brexit issues facing UK’s SMEs

The main obstacles which SMEs continue to deal with involve logistical challenges in supplier and customer relationships where  43 per cent of SME owners have reported being impacted by supply chain issues and have said that it has been harder to obtain cost-effective supplies or produce for their business. Over the past six months, one in four SMEs has seen supplier prices almost double.

There have been rises in material costs alongside increasing competition which has put further pressure on already-stretched SMEs, many of whom have had to dip into cash reserves in order to keep their businesses afloat due to the pandemic. Last year, the Bank of England reported that SME debt had increased significantly, with the share of SMEs holding debt having more than doubled since the start of the pandemic.

On top of this, 38 per cent of SMEs have stated that difficulty in transporting goods to and from the UK has been their largest Brexit concern over the previous year. There have been slowdowns in haulage, which leads to abandoned purchases in the UK, alongside impositions of “holding” and warehousing changes.

There has also been a significant amount of new additional checks and documentation such as customs declarations, Supplier’s Declarations, and Rules of Origin regulations. SMEs have suffered the most with fewer resources to cope with such changes.

Tools for cash management and foreign exchange challenges

Managing cash flow has been another significant problem for UK SMEs. The monthly insolvency statistics for December 2021 report that the number of registered company insolvencies in England and Wales saw a 20 per cent increase from the previous year and a 33 per cent increase from 2019.

Insolvency often arises from cash flow issues, and these continue to be unpredictable for many SMEs. To boost resilience in 2022, there are a number of resources available.

Designed to help UK-based businesses affected by Covid-19 manage cash flow, investment and growth, the Recovery Loan Scheme has been extended by six months to 30 June 2022. From the start of this year, the scheme has only been open to SMEs, meaning that businesses can only apply if their turnover does not exceed £45 million per annum.

Invoice financing has also been hailed as a lifeline for many SMEs over the recent turbulent years after liquidity fell by 80 per cent since the onset of the pandemic.

As geopolitical changes have impacted currency markets over the past year, with currency fluctuations influencing input costs and profit, Foreign Exchange providers can help by locking-in rates to protect against further currency movements.

What can SMEs expect in 2022?

Reducing the risk of foreign exchange will be a crucial consideration for SMEs considering moving into new markets due to new trade agreements that the UK government is currently investigating with countries outside of the EU. If these bring in improved trade conditions for UK businesses, there could be a first-mover advantage to exploring these markets and choosing the right FX partner can make a significant difference in the long term.

International activity beyond the EU provides hope as customers start to respond to marketing activities and make decisions that have been slow or put on hold for the past two years. A recent survey by Accelerated Payments has shown that 64 per cent of respondents expect to export more in 2022 and will continue to expand internationally, with a shifting focus to the Asian markets, including orders to China, Taiwan, Hong Kong and Macao.

The research also found that over the past 18 months, SMEs have had to be reactive to the market and plan to use the start of 2022 as time for consolidation and growth.

All in all, it remains a challenging year for many SMEs, with the effects of Brexit continuing to reverberate. While new trading conditions will take some time to settle, the SMEs that have already started to look further afield for new international opportunities are the ones best positioned to ride out the remainder of these turbulent times.