I once had an employer whose whole business mantra was that ‘cash is king’. He drummed the lesson in that unless you keep cash flowing through the arteries of your business, you always run the risk of potentially terminal problems arising. Late payments are a no-no. Cash is the lifeblood of every small business and, as many will testify, it doesn’t take much for that lifeblood to dry up before you’re staring potential closure in the face.
And so, despite the raft of initiatives and platitudes about supporting small business, not least the introduction of the Prompt Payment Code and, more recently, the Small Business Commissioner, it is depressing to note recent research which shows that the proportion of UK SMEs being paid late is going up.
The SME Confidence Tracker from Bibby Financial Services recently reported that the number of UK SMEs struggling with late payments – those defined as longer than 30 days – actually rose by 9% between the second quarter of 2014 and the second quarter of this year. A quarter of businesses surveyed reported waiting between 31 and 45 days for money, 20% between 41 and 60 days, and 6% between 61 to 100 days.
The Government appears to be trying to take the issue seriously. The Government’s new Enterprise Bill will offer small businesses struggling with late payment the right to use a free mediation service to settle the dispute. The Minister for Small Business, Anna Soubry, has even said that the new Small Business Commissioner’s primary objective will be to tackle the issue of late payment. But many small businesses are likely to be reticent about doing this’ taking your client to mediation may get you your money, but it’s unlikely to get you any more work from them.
Now, I’m not being disingenuous, but this only addresses a part of the problem. Small businesses around the country are often forced to accept unhelpful payment terms if they want to win their customer’s business. But then, as the Bibby research suggests, extended payment terms are allowed to drift further and slip so that payments are made even later. So, frequently, late payment isn’t the result of a dispute. It is the consequence of a conscious strategy to withhold payment from a small business for as long as possible.
This is not a dispute; it is an issue with business culture. Larger companies need to play fair with their small business suppliers and recognise the value that they provide. Small businesses similarly need to play fair with each other. Until we have that kind of culture in place, no mediation service is going to be able to make a significant difference.