Britain’s red carpets have been getting a lot of use recently. Barely had they been put away in the wake of October’s visit by the Chinese president, before they were rolled out again this week for the Indian prime minister.The pomp was in full flow for president Xi – who was treated to lavish banquets and a state visit to Buckingham Palace – while India’s Narendra Modi will have lunch with the Queen and address a crowd of 60,000 British Indians at Wembley Stadium. The primary reason for all this wooing of course is trade. The Chinese president brought with him nearly £40bn in contracts between the UK and China, while Downing Street is set to announce £10bn of trade and investment deals with India. For the UK, there’s the wider marketing point too. Royal flesh-pressing aside, both leaders of these economic titans were invited to carefully choreographed calls with successful and innovative British businesses. The message to the outside world is clear – Britain is open for business, and a willing trade partner for ambitious companies everywhere.
Rhetoric versus realityBut these official attempts to burnish the image of UK plc aren’t always matched by the behaviour of British companies. A recent survey by FEXCO of CFOs and key decision makers at medium to large UK businesses that trade with foreign firms found that more than a third regularly pay overseas suppliers late. Not only did 34 per cent of respondents admit to routinely paying overseas suppliers after payment terms, but four in ten bosses said they are more likely to pay their UK suppliers on time than their overseas trading partners. Such casual disregard for their relationships with overseas suppliers is hardly a shining example of Britain’s international reputation for punctuality – and it is not going unnoticed by our foreign trading partners. Tellingly, nearly three quarters of British decision makers polled said more of their overseas suppliers are now asking for payment upfront. Such terms hardly suggest a strong relationship based on trust. There’s now a real danger that the image of UK plc could be damaged by a nascent and unwelcome late payment culture among British businesses. Read more about late payments:
- Five ways to avoid late payments from larger buyers
- UK suffers from late payment “epidemic” as most firms neglect suppliers
- How late payments became the driving force behind CreditHQ
In a globalised world, business relationships matterWhile many emerging economies have been hit hard by the fall in commodity prices, gradually rising levels of domestic consumption in China and India mean there is ever-growing demand beyond our shores. More than ever before, global producers can choose to whom to sell goods and how much can be charged. If British companies do get a reputation for being late payers, the world’s big exporters could put up the prices we have to pay – or may just decide to sell elsewhere. So there’s a growing danger that the government’s efforts to market the UK will be undermined by the behaviour of British businesses. All the TV adverts, trade delegations and feting of foreign leaders in the world will count for little if overseas companies have an unpleasant experience when trading with British business. This cannot be allowed to happen.
No need, and no benefitThe reasons the companies we interviewed gave for paying overseas suppliers late varied from the optimistic (waiting for the exchange rate to move in their favour) to the sneaky (because they assume it’s harder for overseas suppliers to chase them). But there is no need for, and often little to be gained from, late payment – as there are many tools that allow companies to be protected from volatile exchange rates.
Ambassadors every timeBritish technology, entrepreneurship and innovation have helped thousands of UK businesses to trade successfully with overseas markets. But each business that does so is also an ambassador for UK plc. Consistent late payment of invoices is bad business practice in any market, but is unforgivable when building networks of trading partners overseas. Pride alone should encourage British bosses to treat their foreign trading partners with respect and professionalism each and every time they do business. But if the reality of UK plc fails to match the rhetoric, the Indian prime minister’s visit will be an empty gesture – and British businesses could end up paying higher prices and losing out on vital trading opportunities. David Lamb is head of dealing at the foreign exchange specialists FEXCO.
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