Dealing with the late payment dilemma
The culture of late payment to small firms is getting worse.
The Forum of Private Business has added computer giant Dell to its “Hall of Shame” after it extended the time it takes to pay suppliers by 15 days.
Now Dell expects its suppliers to wait 65 days before payment can be expected, putting their smaller suppliers under pressure as they do not have the resources of their large customers to fall back on.
According to Andrew Bullard, head of business at invoice finance broker Cashflow UK, many smaller companies could go out of business if the 65-day payment policy is taken on by other large companies.
He said: “Large firms know they have their smaller suppliers over a barrel.
“Small businesses feel that they dare not complain about increased payment terms for fear of losing customers altogether, meaning they suffer in silence when all they need is to be paid in a reasonable time.
“A constant cash flow is vital to businesses and many smaller companies have gone out of business during the recession simply because they were unable to collect funds due to them.
A key example is the case of Portsmouth Football Club, which was taken into administration.
The club collapsed after racking up debts of £122.8m. That meant unsecured creditors, many of them small businesses, were left picking up just pennies for every pound owed to them.
Mr Bullard said: “If only these companies had taken steps earlier to ensure they received their payments then at least they may have been in a stronger position now.
“There needs to be greater credit control from the start. Businesses should not be reluctant to send reminders and chase up their money.
“There are some simple solutions to minimizing late payment and freeing up cash flow. If companies cannot afford to install robust internal credit control procedures, then they could consider factoring, which takes away the hard work of chasing late payment and provides companies with an instant cash injection.
“Allowing the likes of Dell to extend their payment terms sends out the wrong message. The Government should crack down on the lengthening of payment terms before the culture spreads still further and bring in legislation to set time limits on payment.
Mr Bullard added: “Large firms often take liberties with their suppliers but it is time for such bully boy tactics to stop.
“Small firms are just as important for the UK economy as larger firms and there needs to be stricter legislation to protect them.”
Cashflow UK are the country’s leading finance brokerage specialising in factoring and invoice discounting and their specialist team of financial experts are able to offer impartial advice and find your client the best provider.
If you have a potential client situation, contact Cashflow UK today on 0800 132 156.
