Small businesses have long been hailed as the backbone of the UK economy – and rightly so. At the start of 2016 the combined annual turnover of SMEs was £1.8 trillion, so it’s no surprise Philip Hammond threw his weight behind them in this year’s Autumn Statement.
Yet, as the Federation of Small Businesses has called out time and again, SMEs are hampered by a culture of late payments and extended payment terms. Paying suppliers slowly, while asking customers to pay you quickly, has been a common theme in business culture, and it won’t change overnight.
There is always outcry when it’s revealed that large businesses are subjecting suppliers to terrible payment terms, as we’ve seen from many headlines in the papers. But we shouldn’t have to wait for public naming and shaming for people to realise that late payments is a serious problem that needs solving.
It’s not just unfair or mildly inconvenient; striking small business’ cash flow can ultimately stop them from running and growing. It’s a huge issue, with PwC recently revealing there is as much as £950 billon of cash owed to SMEs, locked up in unpaid invoices and unsold inventory. The crazy thing is this is not only undermining SMEs but also our own economy – poor payment culture kills 50,000 small firms and costs the UK economy £2.5 billion each year.
Time for change
The good news is things are looking up, and 2017 could be the year we finally take a tougher stance on late payment culprits.
The Department for Business has said that ‘sometime in 2017’, there will be an appointment of a late payments Tsar to champion SMEs in the ongoing battle against large, late paying companies. And the evolution of the Prompt Payment Code (PPC) will come into force this April, 2017, forcing large companies to publish their payment terms bi-annually and pay suppliers within 60 days.
While some may say the PPC won’t go far enough, it’s certainly a start. No longer a leaked dossier, companies’ payment terms will be in the public eye and subject to scrutiny. And having more transparency will undoubtedly go some way to curbing the late payment culture.
We can’t be too optimistic though as, unfortunately, there will always be those large corporations that know how much suppliers want their business and will use this to their advantage.
Despite these new initiatives designed to help SMEs get paid promptly, the bottom line is that they shouldn’t count on these alone. Instead, they should explore ways in which they can take advantage of opportunities to access advance funding, should they be subjected to delays.
This doesn’t necessarily mean taking out a bank loan or extending credit card limits, which can come with unnecessary hassle and paperwork plus high interest rates. Alternative funding methods can give them access to funds quickly, easily and cheaply when cashflow is limited. This will not only improve their financial health in the short-term, but give them peace of mind when they need it and help them continue to run and grow their business.
Ian Watkinson is CCO of Clear Funding.