Lets talk about late payments

I recently read a post on LinkedIn from a fellow small business owner, Simon Slee of Fastsigns Hammersmith. He was celebrating because he’d just been paid in full for some work that he’d completed for a client. Unfortunately, the payment was 671 days overdue! It had taken much of Simon’s time and effort to chase payment; it’s possible this might have even cost more than the value of the invoice itself.

If you’re the owner of a small business, this situation is probably something you’ve come across at some point. As the owner of an SME, I certainly have!

So, who was the late paying company in Simon’s case? A struggling fellow small business owner? Someone who would have liked to have paid but couldn’t because they were waiting on payment themselves? No! In Simon’s case, he waited nearly two years for payment from a company with more than 3,000 employees and billions of pounds in assets. It became more of a matter of principle than about money for him in the end.

This, for me, is where the issue lies. According to the Federation of Small Business (FSB), SMEs and ‘micro businesses’ (less than ten employees) make up 99% of all businesses in the UK. We keep the economy running and keep people in employment, yet we rely on being paid on time. And if large companies cannot be replied upon to pay on time, what chance does our economy have?

A report published by the Business, Energy and Industrial Strategy (BEIS) Committee has said that large companies are treating SMEs ‘disgracefully’ and long payment terms are preventing us from growing. High street stores such as WH Smiths, Boots UK and Holland & Barrett have all been criticised for long payment terms to their suppliers.Rachel Reeves, Chair of the committee, said: “Many SMEs are placed in a stranglehold by larger companies deliberately paying late and ruthlessly taking advantage of their suppliers, causing these firms financial instability”.

The UK’s largest companies are sitting on billions of pounds in net cash, however the Prompt Payment Code (an initiative to promote prompt payment to suppliers) has been deemed as ineffective by MPs. Often it is only bad PR, such as being listed at the bottom of a FTSE100 payee list for example, that drives a change in behaviour in these large companies.I’ve often asked myself why large companies do not pay on time and think about my ‘previous life’ when I worked in large companies.

Often in large organisations, it comes down to a general lack of understanding about the systems and processes that must be followed for a supplier to be paid on time. However, if the work has been carried out and the client is satisfied with the work, is it morally correct not to pay a small business because there was no purchase order on the invoice, because they’re not yet on the company’s system, or because they are not an approved supplier? For the duty to be on SMEs to ensure they’re on the company’s systems and invoicing is exactly in the format required is frankly not fair – in my opinion.

I believe rather than issuing blanket ‘No PO’, No Pay’ policies, large companies should instead focus on paying SME’s quickly – regardless – and implementing these policies for large companies who supply them with goods and services only.

Additionally, the ‘No PO, No Pay’ policies lead to large companies thinking (and indeed likely reporting) that they are paying more efficiently than they in fact are.  For example, if an SME works at risk – while they are put onto company systems and PO’s are raised – large companies set the clock for payment when the invoice is submitted, instead of when the work started!  This cannot be right!

It should not be lost on large companies that, as FSB research shows: ‘the impact on the UK economy would be 50,000 more businesses staying open each year, whilst the UK economy would receive a £2.5billion boost.’

There are some large corporates who are working hard to ensure they stay on top of their payments and it’s important to recognise this. We work with one client to pull together monthly reports on their aged debt, so they can have tighter control over their invoices and budgeting and will be less likely to accrue debt going forward. Since this reporting began, the team involved has been much more proactive in reminding to make payments on time.

We are working in partnership with the Small Business Commissioner’s Office to tackle the issue of late payments.

I’d be really interested to hear what others think or how you tackle the issue, so you can contact me on info@cooteogrady.com

Stacey Coote is a Partner at Coote O’Grady, a legal spend management consultancy. They improve the performance of legal teams through market-leading advice and managed services. Coote O’Grady works with some of the world’s biggest brand names in the automotive, insurance, financial services and pharmaceutical industries.

In 2018 the company won the World Procurement Leaders Award for Best New Consultancy Project.

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