“It was good to see the Prime Minister in Cambridge announcing that there will be a consultation on tackling late payments by businesses later this year,” says David Brassington of CMC Partners, who works with small business owners to achieve their objectives. “But it is only a consultation so it will be a long time until any tangible outcomes materialise. The Prompt Payment Code has been in operation for four years, yet still 85% of small businesses say they have suffered from this problem in the last two years.”
Late payment he says is a real issue for small businesses. “They generally do not have the cash reserves of large businesses, and are relying upon the payments they receive to be able to pay their suppliers and staff on time. The problem is compounded by the fact that those businesses that have the tightest cash flow situation are the ones least likely to have access to finance facilities to help them manage delays in receiving money that they are owed.”
A further challenge is the fact that small businesses will often not have the resources to manage collection of payments efficiently. “There will not be a ‘credit control’ department so it is often the business owner or a junior doing administration who has to fit this job in amongst their other duties. Inevitably, that task slips down the ‘To do’ list in favour of apparently more urgent matters. The sad fact is that finance staff in large companies know which of their suppliers will be on the phone the moment a payment is late, and those are the payments that tend to get priority.”
In his experience some of the worst offenders are in the public sector. “The main issue here can often be that the staff processing payments have absolutely no understanding of the realities that face businesses operating in the “real world.” Perhaps if finance department staff salaries were paid with a delay equivalent to the period that their supplier payments are outside agreed terms, this process would suddenly receive the attention it deserves!”
The argument that companies can refuses to supply a company that doesn’t abide by agreed terms is often not an option says David. “That ignores the imbalance that is often present in these trading relationships. A small business may be heavily dependent upon one large customer. Refusing to supply would create a very significant hole in their income, whilst not having a ‘behaviour changing’ impact on the customer: they’ll just find an alternative supplier. Consequently, small businesses are often reluctant to try to enforce sanctions such as interest on late payment or refusing to supply, and continue to try to make the best of a difficult situation – until the day comes when they are not able to settle their own debts!”
The only real solution to this problem he says is a change of culture. “If senior people in large organisations were to take an interest in their business’s relationship with their suppliers, and emphasise the importance of abiding by agreed terms the situation would improve. The best businesses already have this approach. So, perhaps even before he launches his consultation, Mr Cameron could emphasise to the finance departments of the public sector that late payments to suppliers are no longer acceptable!”
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