B2B Payments

Supply Chain ‘Bullying’ Tied to UK’s SMB Late Payments Deluge?

Late payments are decimating SMBs cash flow in the UK. Federation of Small Businesses chair Mike Cherry issued a call to change the power large firms hold over smaller suppliers, with an eye on ending large firms’ ‘bullying’ processes. Research shows that for SMBs, the payment chase is long, painful and possibly even fatal.

A call for a change in the chain – that would be the supply chain – comes in the U.K., as Financial Times reported the chairman of the Federation of Small Businesses (FSB) decried late payments in the region.

Mike Cherry, the chairman of that organization, has said that FTSE 100 companies should change the way they interact with their suppliers. The key place to start is late payments.

“Many large firms appear to be using the disparity of power in business relationships to squeeze their suppliers, delaying payments to improve their own cash flow,” Cherry said in a letter to the companies. “This is supply chain bullying, pure and simple.”

One glaring example comes via the collapse of Carillion, where the demise of that company sent shockwaves through smaller firms and where payment terms were being pushed out to 120 days. The prompt payment code is not necessarily being acted upon, despite the fact that more than 2,100 companies have signed up to pay suppliers within a 60-day window, with an eye toward adopting a 30-day window.

Cherry’s letter exhorted companies to “personally shine a light” on how they pay suppliers, and to report on payment terms. The FSB has said that roughly 80 percent of members have reported being paid late, and a third of the membership said that payment terms had “deteriorated” over the past two years. A miniscule 4 percent had reported improvement. A third of all payments are late and roughly 50,000 firms have failed each year, at least partially due to poor payment timeframes.

That echoes findings noted in this space before, made by small business finance provider Liberis, who stated that smaller U.K. firms are trying to grab as much as 14.9 billion pounds in late payments. That latest tally represents a staggering one billion pounds higher than seen just six months ago. As much as 72 percent of firms say they spend an average of three days each month chasing late payments, while a third of respondents have said that trying to collect on older debts has hurt their cash flow.

Lest you think that the 440 SMBs surveyed by Liberis are throwing up their hands in defeat, many business owners know that work needs to be done. Roughly 40 percent of businesses said they do not have concrete debt recovery processes in place. But as many as 30 percent of small businesses said they “have or would consider sourcing” additional financing options to ease cash flow issues.

Still, the debt continues to ripen. Liberis said that a quarter of SMEs are chasing “aged debt” that is greater than 20,000 pounds.

The idea of large payors having an outsized impact on smaller firms up and down the supply chain seemed to have some currency on Capitol Hill, as a bill has debuted that looks to hasten payments to smaller vendors from the Department of Defense (DoD). The legislation would mandate that the Department pay smaller contractors – and the larger firms that employ them – within 15 days, down from the 30-day window now in place. The bill is co-sponsored by Senators Ben Cardin of Maryland and Mike Enzi of Wyoming.

Separately, businesslive reports that in South Africa, the Cape Chamber of Commerce and Industry has given its support to a proposal that would create an ombudsman geared toward helping small businesses grapple with late payments. The legislation, known as the Small Enterprises Ombud Service Bill, is now before Parliament. In a region where small businesses contribute as much as 50 percent of economic output, backers state that an ombudsman would help matters in mediation.

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