Small businesses are the backbone of the British economy, yet despite their fiscal importance they’re forced to endure crippling payment terms that can leave cash flows reeling. While the situation has improved slightly following a wave of negative media coverage, the issue is by no means resolved. Some big businesses claim that SMEs are now crying over spilt milk. But the reality is that until 30-day payment terms are considered the norm, the milk is definitely worth crying over.
Crunching the numbers
The latest statistics confirm that over 50% of British SMEs are forced to wait for more than 30 days to receive payment, which can create cavernous cash flow holes. In total, analysts estimate that the national amount owed to SMEs at any one time sits at an abysmal £26.8 billion. These bad payment practices are categorically holding back small businesses, and can even prove fatal for small businesses that simply can’t bridge the gap.
“We’ve seen start-ups land prestigious contracts with big retailers, only to find they are expected to offer £50,000-worth of product up front, pay hundreds of pounds to have their product featured in the magazine and actually have to forfeit a percentage if they want paying in good time,” comments Emma Jones, founder of small business network, Enterprise Nation.
Bullying is still a very real issue for small businesses, and unfortunately the age-old ‘sticks and stones’ mantra doesn’t apply. Late payment terms can break a business, which is why it’s so important to throw bullies into the spotlight.
Naming and shaming
Right now we’re offering serious kudos to the Forum of Private Business, which has set up its own Hall of Shame. Naming and shaming big businesses, the forum maintains that without a level playing field the UK will fail to attract international interest. So what businesses have been stung? Carlsberg is discredited as one of the worst blue chips on the list, with payment terms of 93 days. Food giant Mars is another bona fide offender, as are high street icons like Halfords, Debenhams, Monsoon and Premier Foods.
The trend setters
Late payment terms are a nationwide problem, but that’s not to say that all big businesses are tyrants. We’ll give credit where credit’s deserved, and Waitrose has definitely earned a mention. Pledging to pay its smallest suppliers within seven days, the high end supermarket is blazing a trail when it comes to forging fair B2B relationships. Under new contracts, all suppliers with annual invoices of £100,000 and under will be paid within a week. The move is part of a plan to enhance its credentials as an ethical grocer, and support British SMEs.
A cash flow friendly solution
As explored, late payment terms are a very real hurdle for British SMEs. Waitrose’s trail blazing approach is by no means standard, but that doesn’t mean small businesses have to endure 90+ day payment terms. Products like GapCap’s Select Invoice Finance exist to support small businesses, and ensure that accounts receivables are accessible on demand.