A damaging culture of failing to pay invoices on time flourishes across all sectors and at all levels in the supply chain. Often it’s the big players that put the squeeze on SME suppliers - leaving them exposed to potential business failure and job losses.
The new Tory government has unveiled its Enterprise Bill, which at first glance seems to offer some comfort to SMEs on tackling poor payment practices. The bill promises to build on existing measures, including a voluntary code of conduct, to help ensure that these companies are paid on time.
However, Melanie Hird, director of Seneca Investments (part of Seneca Partners Limited) is sceptical that a voluntary initiative will ever force the hand of those corporates who know that they have the financial clout to withhold payments – in some cases insisting on terms of up to 90 - and even 120 days.
Research from the Institute of Directors (IOD) at the end of 2014 revealed the scale of the problem.
A staggering 66% of the IOD’s SME members who were surveyed reported issues with late payment of invoices while 1 in 8 said their customers had changed payment terms and 28% revealed that they had been forced to delay payment to their own suppliers.
Additional findings highlighted that 13% were prevented from growing their businesses as planned and 10% were forced to reorganise their financing arrangements.
Although 1,700 companies including Admiral Insurance, Vodafone and Tesco, have signed up to the voluntary Prompt Payment Code, the IOD survey shows that failure to pay bills on time is still widespread.
Many SMEs, who are understandably frightened of losing their big customers, will not challenge poor payment practices - and some may even agree to unrealistic terms. In the absence of a law compelling companies to pay on time, there are steps that SMEs can take to help manage late payment:
The stability of an entire supply chain can be threatened by just one company failing to pay on time so I urge any SME business owner to seek advice if unpaid invoices are keeping them awake at night.
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