The study comes from invoice management firm Concur, which also discovered that one in ten firms are incapable of accurately forecasting cash flow. This effectively means that company leaders have no idea how healthy their businesses actually are.
Tesco, of course, has been widely publicised for its damaged financial results. In April, the company reported a £6.4bn loss and CEO Dave Lewis has been selling off numerous divisions in order to turn the supermarket’s fortunes around into a better direction.
A key move in the strategy to improve its image came as Tesco promised to pay SME suppliers quicker than larger firms. The simplified payment processes will result in small companies having accounts settled within a fortnight.
“By introducing a new standardised policy across each category for our larger suppliers, and shorter payment terms for our small and medium suppliers, it will help us to deliver a fairer, more transparent and consistent approach across our supply-base,” said Lewis.
He added that the change in procedure will also benefit the customers, as they want “great availability and new choices”.
According to Concur, over a third of companies said they had been met with charges for late payments to suppliers. And damaging operations, rather than just the bank balance, 22 per cent had their orders cancelled and a quarter said suppliers had even refused to strike up a partnership because of late invoice settlements.
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David Vine, UK SMB MD at Concur, said: “What this research demonstrates is that late payments are not happening ‘every now and then.’ It’s an epidemic that has potential to blight British business and create a significant cash crunch. Is it any wonder that businesses find themselves on the receiving end of pre-emptive action from suppliers when one in ten are effectively operating blind?
“The issue is that every time a business pays a supplier late, it is felt all the way down the supply chain, arguably hitting smaller businesses the hardest. As companies face cash flow issues stemming from late payments, many hold on to their funds to meet their most critical obligations. This is money they could be investing in new technology or using to hire staff and grow their businesses.”
The research also revealed 88 per cent of companies receive calls from suppliers regarding payment updates. Seven in ten said it happens at least once a week and third said they’re chased daily, but three in five firms claimed it’s hard to give accurate responses.
Concur highlighted the government’s attempt to stamp out the bad habits with a small business commissioner tasked with resolving late payment disputes and making large firms aware of the damage they can cause.
“There are no ifs, buts or maybes, businesses have got to improve the visibility of their payment processes,” added Vine.
“They need to have real-time insights into their liabilities and cash flow and manage expenditure accordingly. The current situation simply isn’t sustainable, for suppliers or purchasers. If something doesn’t change, serious cracks will start to appear within the economy.”