THE government has just launched its “Business Buddy” scheme. This will have MPs spending time working in small or medium-sized businesses, seeing first-hand the challenges faced by entrepreneurs. These businesses represent the engine room of economic growth: in total 4.8m of these businesses provide 60 per cent of UK jobs and over half the country’s GDP. The entrepreneurs at the helm drive innovation and the commercialisation of new technologies, ensuring Britain’s long-term competitive advantage. Let’s hope these MPs quickly recognise what is by far their most critical problem: persistent and prevalent late payments on commercial invoices.
The consequences of something as seemingly innocuous as getting paid late are potentially lethal. Even if a small business makes a healthy profit, not being able to bring cash through the door means paying staff, covering rent, and settling bills to suppliers can quickly become a nightmare. With no cash, there is no appetite to pitch for new tenders, invest in new machinery, expand the team, run advertising campaigns, or take advantage of bulk discounts.
LATE PAYMENT CASUALTIES
Recent figures from the Department for Business cause concern: 4,000 UK businesses failed in 2008 as a direct consequence of late payment, and currently 73 per cent of small businesses have experienced late payment within the last 12 months. When small businesses do finally get paid, the length of time they wait is on average 39 days beyond payment terms. Recent analysis shows they are being forced to spend an average of half a day every week pursuing payments – lost time not being channelled into expanding the business.
Who are the biggest culprits? Large corporations, fully aware of the power they hold over their SME supplier base, often bargain hard and enforce 90-120 day payment terms. At Marketinvoice, we have trading statistics that show FTSE 250 companies (high street and household brands) paying these businesses as late as 30 days after these official terms.
Small and medium-sized businesses are trapped in a “double credit crunch” – not only are they being squeezed, waiting for their invoices to be paid. They are also experiencing severe cutbacks in bank overdrafts, which means that they also lack short-term financing options. Businesses now often have to resort to accepting contracts that are inflexible and costly to them. Entrepreneurs are forced to pledge their personal assets as guarantees, turning business failures into personal bankruptcies. Those who can’t access finance risk disappearing altogether.
The quiet death of these businesses does not capture the popular imagination in the same way that the failures of Jane Norman or Oddbins can. According to Begbies Traynor Group, nearly 200,000 UK businesses are currently experiencing “significant” or “critical” financial stress. The detrimental effects of these failures on jobs, innovation and entrepreneurial drive should matter just as much as the failure of large high street brands. The Business Buddy MPs must focus a spotlight on late payers and expose them in the media. It is time the government did more to help businesses receive prompt payments as well as improving access to new sources of flexible cash flow.
Marketinvoice is an online platform allowing small and medium-sized businesses to monetise outstanding invoices by selling them forward for a small discount.