3 companies that will make sure you get paid on time » SMEInsider

3 companies that will make sure you get paid on time

Waiting around for months for a payment is a total nightmare for an SME. Luckily, there are companies out there that are dedicated to solving precisely this problem.

It’s essential to make sure you’ve got the legal components in place to define your payment terms, protect your rights and give you the tools to fight back if an invoice is overdue. The problem, as any small business knows, is that once you get to that point, the damage has often been done already as far as your cashflow is concerned.

There has been a worrying shift among large corporates towards treating their suppliers like a bank, delaying payments to keep cash in their own accounts for as long as possible. Knowing that their suppliers can become unstuck by this behaviour, some unscrupulous companies have even tried to take advantage of the situation by pressuring SMEs to offer significant discounts on their invoices, in return for a shorter lead time.

Other companies have begun to offer services such as invoice factoring, in which a business effectively sells their outstanding invoice to a third party for less than it is worth.

In both of these scenarios, small businesses that have already negotiated their fee and completed their work without complaint are then bullied into taking a cut for no better reason than the convenience of their customer;  customers that can well afford to pay them on time. Certainly not an ideal outcome.

So what options are out there for SMEs that want to protect their cashflow and their profits? Here are three of the best.

 

1. Find a middle man… but make it the client’s problem

“Pushing the supplier payment out has become a corporate sport, a race to see who can leave it the longest,” says David Brown, founder of Remitia. “It’s much cheaper to borrow from a supplier than from a bank. But this is a huge problem for SMEs, which are low on the value chain.”

Instead, he explains: “our challenge was to look at the buyer.”

Remitia realised that big companies were never going to give up the benefits of clinging to cash voluntarily, and so to make the system work, they would have to make sure that the client could retain the same lead times. To do this, they act as a kind of outsourced account team, paying the money to the supplier upfront, then letting the buyer pay them after their preferred interval.

This, says Brown, “doesn’t affect their cash position,” and even though the buyer has to pay a fee for the privilege, it’s small compared to the combined benefits of long payment lead times and maintaining a good relationship with their supplier.

Pros: Everyone pays and is paid at the time they like, at no cost to the SME.

Cons: Persuading the buyer to pay a fee when they’re used to reaping the benefits for free.

 

2. Find a middle man…. and accept a small cut

Much like David Brown, InvaPay’s Neil Radley feels that the corporate culture of paying late is a serious hurdle to finding a fair solution.

Traditional models are based on the typical treasurer believing that holding on to cash, and paying as late as possible, must be good for business,” he says. “Days outstanding is a target to aim for, and indeed on the surface it provides a measurable target and one we can bonus the accounts payable team for extending.”

But, for Radley, the solution is all about offering an incentive for fast payment, and that has to be financial.

InvaPay gives clients the options of paying their suppliers through an automated cloud system, which keeps down the costs. The supplier is charged 2%, which is far, far less than many rival companies – and is paid in 3 days, rather than the 30 that most ask for. This means that, although they do take a small financial hit, they also gain the benefit of extremely fast payment.

The Pros: Much faster payments than you could ever ask for on a standard invoice

The Cons: A small financial hit

 

3. Sell to the government

The government may have got into a spot of trouble for behaving like a corporation and holding up its own payments to SMEs, but after an outcry it’s been persuaded to clean up its act. Smaller providers can now bid for government contracts through the G-cloud system, which aims to simplify the procurement and pitching process to open it up to SMEs.

More pertinently, as of today, once SMEs have completed the work, they’ll be guaranteed payment within 30 days.

As Lee Perkins, Managing Director of accounting providers Sage UK & Ireland, says: “With Government also ramping up the focus on making Whitehall contracts accessible to all, this will make its G-Cloud procurement platform more attractive to small firms and help remove concerns about not being paid on time.  

“Cash flow is the lifeblood of any businesses and more needs to be done if we are to eliminate the crippling late payment culture in the UK with the private sector leading the way. We are calling on all bigger firms to start shouldering the responsibility by improving their own payment terms to their suppliers.”

The Pros: A one-stop shop for securing contracts that are guaranteed to be paid on time

The Cons: The rules only apply to government contracts – for now. Pressure is mounting for regulators to force corporations to pay their SME suppliers within 30 days, too.