Business confidence allowing SMEs to boycott late payers » SMEInsider

Business confidence allowing SMEs to boycott late payers

SMEs are walking away from contract opportunities with firms that do not pay invoices on time, in order to improve their financial security, according to experts at PKF Cooper Parry.

Having long been the scourge of small businesses, late payment can have a catastrophic impact on cash flow, preventing the flexibility required to pursue contract opportunities, invest in machinery and hire new staff. With some larger firms insisting on payment terms of up to 90 days, further delays can be critical, putting smaller companies at risk of insolvency.

This issue is exacerbated by a significant reduction in the overdraft facilities available to SMEs; recent data suggests that 30 per cent of firms have seen limitations imposed over the past two years, with 17 per cent having their overdraft withdrawn entirely.


Timely payment a priority

Ross Cocker, director at PKF Cooper Parry said: “Historically many SMEs chased increased turnover, however, post-recession, the focus has now shifted to promoting stability and sustainable growth. The majority of firms now regard timely payment and healthy working capital as a priority, and as a result, many are boycotting clients that do not pay 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.”

“From April, new legislation will require large companies to publish their payment practices on a biannual basis, including the average length of time the business takes to pay suppliers as well as the proportion of invoices that are paid beyond the agreed terms. This is a really positive step for SMEs and has the potential to promote a cultural change where transparency is expected as standard, putting smaller firms in an even better position to negotiate.”

There are a number of strategies that SMEs currently employ to protect their cash flow. This includes offering financial incentives to clients in exchange for swifter payment, as well as seeking alternative funding such as invoice finance and asset-based lending agreements.


Address payment conditions early  

Cocker added: “Extended payment terms are seen as somewhat of a necessary evil by many firms; 60 or even 90 day agreements can be planned for, and businesses with a sufficiently robust cash flow provision are unlikely to turn down lucrative contracts for this reason alone. It is late payment that is the real enemy.

Uncertainty skews projections and can have a knock-on effect on the day-to-day running of a business. 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.”

  • LatePaymentDirectory

    SMEs do indeed need greater confidence to turn their backs on contracts that could damage their business, equally they need to understand the context around WHY customers may pay invoices late.

    Not all late payment is due to institutionalised policy of late payment, the situation is more nuanced than that. As Philip King, the CEO of the Chartered Institute of Credit Management said:

    “All too often we’re told that every large company exploits every SME, and that generalisation simply isn’t true. It’s a dangerous assumption to make and an unhealthy message to keep propagating.”

    It’s important that suppliers have a clearer understanding of the context, that’s how they can make better informed decisions about which contracts to pursue and which not to. BUT to get that context suppliers must work together and share some basic non competitively sensitive information.