However, as is probably known all too well, trade credit is a critical requirement in the cash conversion cycle, and likely to be essential if an SME is to win new business, or just stay afloat.
Tough economic times exacerbate the issue of credit risk, as suppliers are often facing similar issues. Suppliers take longer to pay the SME’s, however the SME’s have nowhere to turn to get the capital they need.
SME’s may argue that their role is to produce good and supply services to their customers, and not to offer finance, or indeed "finance the lifestyles "of their customers. Often in practice for an SME it is a question of getting to the end of the month intact, rather than being able to focus on strategy or growth.
Due to their size, SME’s are particularly vulnerable to trade credit risk. If the UK economy is to get back to where it should be, then it is generally acknowledged that SME’s will need to play a key role.
Tackling credit risk has prompted some research and analysis. Of particular interest in a recent research study were the reasons given by SME’s for late payment. These included;
So, how can you try to ensure that your business gets paid quicker? According to the research the following practices help;
The reasons for late payment are not only due to one party. If the SME has clear policies, organised credit teams, which are effectively structured, well-staffed and integrated both into the business and know the customer, it appears to have a positive effect on cash flow. It may always be the case that the larger customer will always take advantage of the unequal bargaining position of the SME, however it seems despite this, some SME’s are better at getting paid than others. The challenge is thus perhaps rather than accepting that is the proverbial "David v Goliath" situation, but more of what can the SME do to try to help itself.
There are things you can do to make sure that your business gets paid. The following are a few top tips;
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