Late payments is a subject I’ve previously tackled and make no apologies for again returning to as the issue is simply poor business practice. It poses a real threat to building a successful economy.
On top of that, it really gets my goat.
But credit where it’s due. You might think parliament is currently paralysed by the whole never-ending debate over Brexit – but behind the scenes a group of MPs are carrying out insightful work to end this blight on small businesses.
The Business, Energy and Industrial Strategy Committee is urging the government to get tough with larger companies who treat SMEs “disgracefully,” by forcing through long payment terms or just paying up way too late.
It has concluded, rather obviously in my opinion, that such practices have caused the failure of many an SME and have curbed their ability to grow or improve productivity.
Entrepreneurs already have it tough without being forced to wait an excessive time to receive what’s fairly owed, long after they have supplied the goods or services.
That’s just not fair and does nothing to stimulate the UK economy.
The committee has produced a report which recommends the government introduces a statutory requirement for companies to pay within 30 days.
It also wants to see medium and large companies swiftly sign up to the Prompt Payment Code while providing the Small Business Commissioner with the necessary powers to fine late-payers.
It produced evidence that several familiar high street names impose long payment arrangements, with several taking an average 60 days to settle invoices.
Add to this other unfavourable terms, including SMEs being required to provide discounts in return for prompt payment or being charged to remain on a suppliers’ list, then it’s no wonder many firms are struggling to keep the wolf from the door.
Pimlico Plumbers is fortunate to be thriving in the current uncertain economic conditions and the business is still expanding and growing.
But I haven’t forgotten those early days when cash flow was crucial in the hand-to-mouth existence. It’s no joke having to chase businesses for money and it’s a truly frustrating and demoralising process.
Amounts which mean very little to a corporate are often the difference between an SME surviving or folding – or forcing it into talking out expensive loans to bridge the lack of income.
According to the Federation of Small Businesses, SMEs are owed on average £6,142 – mainly by larger firms. Before its collapse, Carillion was taking four whole months to pay suppliers.
It says that a shocking 37% of small businesses run into cash flow difficulties, 30% have been forced into taking out an overdraft, while 20% suffered a slowdown in profit growth as a result.
Furthermore, 61% of small businesses are paid late by big businesses. But conversely, 79% of small businesses don’t charge interest for overdue invoices.
The reality is they can’t afford to upset the customer and lose out on future business. That’s if they are still in existence.
So, enough is enough. The government must heed the committee’s recommendations and act decisively to put an end to such ruthless and questionable practices.
This country is built upon entrepreneurial spirit and those in power must stop being dazzled by big business and start protecting those SMEs which form the backbone of the British economy.
By continuing to ignore the financial stranglehold being placed upon SMEs in the UK, the Government will only succeed in restricting the opportunities available for future investment and growth.
Small businesses don’t want favourable treatment, just fair treatment, and these latest recommendations will go a long way to achieving this.
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