EOW Reflections 01/09/2023

“Xxxxxx (small firm) is undergoing intense financial pressure because most of our business’s circulating capital is held captive by the YYYY (customer). Our business is at a standstill while the YYYY business is joyfully progressing. We do not want to wind up our business.”

This statement by a small supplier (Xxxxxx) asking for our help this week really made me see red. How do bigger customers ‘joyfully progress’ with their businesses when they are putting their small suppliers under intense financial pressure.

The work is done, delivered, everyone is satisfied, there’s no dispute about the money owed, promises to pay have been made, so where’s the money? Disaster looms and just for the supplier but potentially for the customer too. So, I’m seeing red: no bigger customer should be holding back money owed to a supplier.

If you have contracted for the work, in writing or verbally (although written contracts with clear terms and conditions including payment terms always make things clearer and focusses the mind), then you have promised to pay within those terms. Stick to your promises.

Why isn’t the customer paying? Are they holding onto the money to fund the growth and development of their own business? That’s unacceptable. You can’t use your suppliers as banks. Go to your lenders/funders and ask them to provide you with the money to develop your ideas. It’s up to you to take the risks, invest at your own expense, do the additional work to find the right funding, but pay your suppliers.

If you don’t, while you’re building, they’re folding. In some sectors there are very few specialist suppliers for particular goods and services, which makes finding a replacement next to impossible. In some sectors suppliers are so niche they set their own payment terms and withdraw services if you fail to pay within those terms. Treat them with the respect they deserve or face the consequences.

However, the customer could be in financial difficulty and holding onto the money owed to suppliers to save their own skin. They could be waiting for their customers to pay them. I suspect this is causing many of the supply chain problems building up in the economy. You contracted with a firm to buy their goods and services. They delivered on the understanding you would pay within the agreed terms. Now it’s up to you to find the money to pay as agreed. If you have to order on the basis that a supplier will get paid if/when you get paid you shouldn’t be placing the order.

If you knew before contracting for goods or services that you wouldn’t be able to pay you could be wrongfully trading and that’s serious. No matter what your situation it’s your responsibility to borrow to pay the supplier, not the supplier’s responsibility to wait until you can pay. You must bear the costs not the supplier.

Is the customer here in financial difficulty? If so other suppliers will not want to supply them. Or are they growing their business using the supplier’s money? In that case suppliers shouldn’t do business with them. Either way the danger isn’t just that the small supplier will go bust but that the reputation of the bigger, better off customer will be damaged by being labelled a poor payer. That’s a sure way to lose suppliers.

When suppliers get paid quickly and fairly #EveryoneBenefts. Delaying payments by allowing them to go overdue or by offered extended payment terms damages suppliers, customers, the economy, society, communities and families.

For everyone’s sake we must boot out poor payments practices.