Such contracts can be very lucrative and potentially open the doors to other large, high profile opportunities. However, there are issues that can arise when dealing with larger buyers of which SMEs need to be mindful.
Recently the government estimated that small businesses are owed £26bn in late payments. To tackle this, the government has proposed a Small Business Conciliation Service.
Announced in the Queen’s Speech earlier this year, this service aims to help small businesses settle disputes with larger businesses without having to go to court.
As part of the Enterprise Bill, the government has also put forward a Small Business Commissioner. The Minister of State for Small Business, Industry and Enterprise, Anna Soubry MP, has said that the aim behind the creation of a Small Business Commissioner is to “help bring about a change in how businesses deal with each other – a long-lasting culture change – to ensure fair treatment for all.”
Soubry goes on to state she wants the Commissioner “to help small businesses settle disputes quickly and cheaply so they can spend the maximum time possible running their business, while still preserving their commercial relationships”.
The new legislation is unlikely to change one of the main difficulties faced by small businesses when dealing with larger customers, namely that the large customers tend to take longer to pay – 60 days are often normal, with some large companies taking even longer to pay.
In addition to this problem thrown up by an inequality of bargaining positions is the fact that chasing a debt can be costly. If a debt seems unrecoverable, many smaller businesses will be reluctant to take the issue to court as this again could prove costly and time-consuming.
Read more about Britain’s late payment culture:
- Payment wait of 72 days for firms turning over less than £1m
- SMEs owed £67bn in unpaid invoices – and the problem’s getting worse
- Report late payment data in annual accounts, says CBI
However, it is important that smaller businesses tackle issues with big buyers head on – a hiccup in a supply chain can have ripples across the whole market – meaning that the SME in turn could be late to pay their bills.
Here are some simple steps which businesses can take to minimise the risk of problems in their supply chain due to larger buyers:
1. Carry out due diligence
Before entering into a new supplier relationship if possible it would be advisable to carry out some due diligence on the buyer – if it’s a big company and they have a reputation for poor payment times it is better to be forewarned and forearmed.
2. Don’t use cookie cutter contracts
Ensure your contracts are carefully checked, preferably by your lawyer. If this is the first big contract you have worked on it is important to make sure the terms are appropriate and payment times, for example, are clear.
3. Make the process easy
Ensure your payment details are marked very clearly on invoices – this will help busy finance departments find the right information quickly.
4. Chase, chase, chase
Make sure you monitor when payments are due carefully – as soon as the deadline has passed send a reminder and pick up the phone. You won’t do yourself any favours if you avoid chasing bills.
5. Claim back interest
You do have a statutory right to claim interest for late payment of debts – sometimes threatening this can give contracting partners an impetus to pay your bills as a priority.
Oliver Jackson is a partner at Mundays.
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