Don’t stand for late payment

Beatrice Bartlay

Big name companies are paying smaller agencies late and wrecking their cash flow. Beatrice Bartlay provides some advice on how to confront them  

Lloyds TSB Commercial Finance recently reported that over half (54 per cent) of British small to medium-sized companies experiencing cash flow problems blame late payments.

Larger companies are crippling SMEs – a category many recruitment agencies fall into – by paying late, and insisting on unfeasibly long payment terms with ludicrous extras such as imposed discounts, just for the privilege of supplying to big names. Late payments are one of the biggest issues affecting small British businesses and the government needs to be addressing this, doing more to help the companies that form the backbone to UK Plc. It was also recently reported that the average time taken to pay bills is now 15 days late against agreed payment terms. Although this has improved by two days over the last year, it still suggests that British businesses have erratic cash flow. 

The economic recovery of Britain lies in the hands of SMEs, which in 2012 accounted for 99.9 per cent of all private sector businesses in the UK; 59.1 per cent of private sector employment and 48.8 per cent of private sector turnover. The Department for Business, Innovation and Skills (BIS), which published these figures, announced amended late payment legislation in mid-March 2013. But even this won’t stop larger companies flexing their big branded muscles when it comes to negotiating terms at contract stage.

Acceptable timeframes

The legislation states that 60 days is the maximum timeframe acceptable to pay suppliers. Taking in to account that companies are, on average, being paid 15 days late, in some cases it will be more like 75 days, so 30 days is the optimum and now is the time to fight for it. Let’s face it: the first few years for an small agency are a telling one, and they’ll only survive on a decent cash flow.

We are missing simple, practical, no-cost help to small businesses. A simple piece of legislation that insists that all payment terms have to be 30 days. What is strangling small business and economic recovery is the demands being placed on smaller companies by larger players at the contract stage – something that has not even been raised by BIS.

This amended legislation makes pursuing payment a simpler process across the European Union, reducing the culture of paying late and making paying on time the norm. Although this is a good development and a step in the right direction, it is not far enough.

BIS itself states that “Evidence suggests that the best way of securing timely payment is to agree terms in advance of the transaction and to invoice timely and accurately – effort therefore needs to be focused upon managing customer relationships and managing cash flow.” However, what this fails to acknowledge, is that many SMEs are at the peril of larger organisations and will feel pressured to compromise in order to secure the business or the larger and well-known organisations.

Time to fight

As a founder of a small recruitment business myself, all owners should be coming together to put pressure on the government to further change legislation to protect our cash flow, and the British economy. Payment terms could even be viewed in the same way as wages – employees and contractors would not stand for such flexible terms.

Imagine the reaction if, come pay day, their financial director advises that they will get paid…but not for another 30 days, and apparently, it was in the contract. And, on top of this, they will be taking two per cent from their salary for the privilege of working for the company and having it on their CV. No employee or contractor would stand for this, and neither should the business.

Legally, if larger organisations want more lenient payment terms, they can agree this with you. The trouble with this is that many small companies will want to jump through hoops to secure large names as business, bringing it right back to the root of the problem. SMEs want the big business, and the big businesses know this and take advantage. Avoid this by being strong at the contract stage. If we all stood our ground, no one would be undercutting each other, and all would be better off. If your cash flow will struggle by agreeing to later payments, simply don’t adhere.

Unfortunately, if you have agreed to later payment, there is legally nothing that can be done if an organisation does not pay within 30 days, but you may take legal action as soon as the company oversteps the agreed date. To avoid this occurring in the first place, carry out thorough credit checks on any potential customers or businesses you deal with.

Late payers are not easy to deal with and unfortunately, almost all business owners will have to deal with them at some stage. We must push for better legislation with government, and in the meantime stand strong against the big bullies.

Beatrice Bartlay is managing director and founder of 2B Interface