BUSINESS confidence in Scotland is marginally positive for the first time in a year, according to the latest Institute of Chartered Accountants in England and Wales (ICAEW) Business Confidence Monitor.

The quarter three Scottish score of +2.8 is above the Q3 UK average of -10.3, but companies are still facing a series of challenges which are curbing investment plans, ICAEW reported.

Despite the difficulties, businesses in Scotland are increasing their investment expenditure. Research and development budgets are up by 3.6% in Q3 2019 year-on-year, following a rise of 2.1% last year. Capital investment is up by 2.9%, which is a broadly similar rate to last year but higher than the current UK average of 1.7%.

Foremost among the difficulties facing businesses in Scotland are sales problems – domestic sales growth slowed to 2.9% year-on-year in Q3 2019, compared to 3.6% in the previous year. Export growth, meanwhile, stands at just 0.6%, the joint slowest rate in Scotland for a decade.

Reflecting this weaker sales growth, companies are struggling to achieve any substantial increases in selling prices (0.4%). ICAEW said these increases also significantly trail input price inflation.

ICAEW Scotland director David Bond claimed that the prospect of another referendum on Scottish independence was adding to business uncertainty caused by Brexit.

“Whilst it is encouraging to see business confidence in Scotland returning to positive territory – albeit only just – the levels of concern expressed by businesses overall, suggests that there are still many challenges ahead and that the positivity seen here is potentially fragile,” he said.

“Businesses here in Scotland face not only the uncertainty surrounding Brexit, that is causing concern for many business across the UK, but also the possibility of a second Scottish independence referendum.”

The ICAEW reported that price-cost factors, combined with muted sales, are impeding profits in Q3 of this year. Profits are up by 2% year-on-year, but this is down from the rate of 4.4% a year ago.

Companies in Scotland are also expressing concerns over demand factors, ICAEW said.

Marketplace competition is the most widely reported growing issue, according to its report, with 45% of businesses citing increasing difficulty. Issues with customer demand are now a more pressing concern for 35% of companies, up from 23% reported a year ago.

The market conditions also mean that a higher proportion of businesses report that they are increasingly challenged by late payments – this is up from 13% last year to 25% in Q3 2019.

ICAEW said this could be particularly problematic for companies already experiencing weak profits growth.

Tim Gardiner, ICAEW Scotland member and finance director at Borders-based Panton McLeod Limited, said: “The most obvious case of abusive slow payers is still large corporates, particularly in the construction industry.

“A large part of the problem is where companies have complicated processes for the submission of invoices or claims for payment, combined with a lack of clarity as to who is the contracting company in relation to large-scale projects. This arises from intermediaries acting on behalf of utility companies in my experience.”