My term as Small Business Commissioner will come to an end in June after 4 (very quick) years. I’ve been thinking about why I’ve found late and long payments to be such an intractable problem. I think we’re definitely talking about the issues more, and business owners are willing to be more open about the impact on their finances and personal wellbeing, yet we still can’t crack it. I’m convinced that if we could nail it, we could help the Chancellor with her growth aspiration for the economy and help firms be more productive and confident enough to invest.
What are the barriers to better payment practices?
Bigger businesses sometimes don’t know their suppliers, how they operate, how slim their margins are and how few resources there are in the pot to tide them over an overdue payment or a long payment term.
In some cases, their own internal departments don’t know how their other internal departments work and so they can’t give smaller suppliers all the help and support that would get them paid quicker and fairer.
Small businesses won’t rock the boat in case they lose the work, so instead of chasing up late payments, charging interest and compensation, pushing back when offered 90-day payment terms, or walking away from a contract that could sink them, they just accept all those poor practices as their lot in life and struggle through sleepless nights worry about how to pay their own bills and people.
Investors and Board members don’t usually ask how well the firms they’re working with treat their small suppliers. Ask: how quickly do we pay? What are our standard payment terms? If Board members asked that could improve payment practices and governance. If investors asked and refused to invest in poor paying firms that could be a game changer.
The tech firms are changing things with apps and payment platforms and e-invoicing (consultation is out now on whether or not it should be mandated) could help a lot of small firms to get paid quicker, but firms large and small have got to embrace the technology and smaller firms probably need more support with tech transformation and adoption.
The data is dubious. We don’t have a complete picture of who is paying whom when. Some of the self-reported data has no integrity because firms are counting differently, interpreting the rules differently, so we’re not able to confidently compare apples with apples. That doesn’t help smaller suppliers to check to see who’s a good payer and who isn’t.
If we cracked this, and small businesses/suppliers got paid on time as per the contractual agreements, and those contractual agreements were fair and allowed for quick payments, the recipients could reduce the amount of time chasing up payments (estimates are around 72 days a year) and use that time to do other productive business activities for starters. They wouldn’t have to borrow and pay fees and interest on a financial sticking plaster to allow them to carry on trading while waiting for money to come in. They could manage their cashflow and have the confidence to invest in things like skills, retraining, equipment that would allow them to grow. Bigger customers would benefit from better products and services, greater innovation, improved supplier relationships and loyalty. Everyone’s mental health and wellbeing would improve, bringing down costs to the NHS and reducing the dreadful impact on small business owners of waiting to be paid. The list of benefits is endless.
Please, please let’s get this sorted before I go in June. Get ready to get an award from the Fair Payment Code for a start and let’s do the right think collectively from there. I don’t want to be repeating myself 30 or 40 years hence. I’ll be well past my sell by date by then.
