Confident SMEs Are Ditching Their Late-Paying Partners

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Especially in the wake of the financial crisis, businesses saw their wallets tightened. For corporate buyers, that meant stretching out invoice settlement times as long as possible. For suppliers, that meant being forced to accept these payment terms for fear of losing a major client.

But with economic recovery gaining momentum and with the late payments problem in the U.K. gaining headlines, small suppliers are fed up.

According to new analysis from PKF Cooper Parry, that sentiment means small suppliers today are gaining confidence to ditch their contracts with corporate buyers unwilling to pay within a reasonable time frame.

“Historically, many SMEs chased increased turnover,” said PKF Cooper Parry Director Ross Cocker in a statement on Tuesday (Feb. 23) in announcing the results of the research. “However, post-recession, the focus has now shifted to promoting stability and sustainable growth.”

The director added that the majority of businesses are now prioritizing cash flow and timely payments, leading many companies to actually boycott the clients that do not pay their invoices on time.

“Improved market conditions, as well as the necessity for businesses to manage their cash flow more effectively, means that a number of SMEs now feel confident enough to walk away from deals with late payers,” Cocker added.

The trend is exacerbated, analysis said, by the limitations on overdraft and bank loans that SMEs have witnessed in the last two years.

While Cocker acknowledged that extended payment terms are often a “necessary evil” and that payment terms as long as 60 or even 90 days payable outstanding can be accounted for in corporate cash flow forecasting, it’s unexpected late payments that are forcing suppliers to ditch corporate partners.

“Uncertainty skews projections and can have a knock-on effect on the day-to-day running of a business,” Cocker explained. “SMEs must address the subject of payment procedures early on, ensuring that they are not held up by administrative loopholes and that their client is aware of the importance of prompt payment.”