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SME growth - risks in bidding for large contracts

While winning a contract can be an exhilarating experience for smes, failing to assess its impact on business can pose many problems. Paul Golden looks into what SMEs can do to prepare for bidding.

In its recent research, Hitachi Capital Invoice Finance (HCIF) found that nearly half of small businesses (47.5%) turned down contracts because they could not deliver the work. For early stage companies, the figure rose to 70%. 

The most common reasons given for rejection included contracts not paying enough, lack of management time and unreasonable contract demands. Early stage companies were likely to reject a contract based on price. However, the influence of finance teams on accepting or rejecting a contract is reflected in the finding that half of businesses surveyed turned down a contract solely due to payment terms.

Though it may be very exciting for those involved, winning a contract that dwarfs the existing turnover of a business creates a number of risks; the main risk factor being the ability to finance the contract. Large contracts might absorb a significant amount of time and money to deliver as customers are rarely prepared to make interim payments. 

This is an extract from the Business & Management Magazine, Issue 261, February 2018.   

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