By Philip King, above, a Non-Executive Director of Saltare, and former interim Small Business Commissioner
Getting paid on time can be a lifeline to levelling up and supercharging growth. Cash is like oxygen; the problem is that many businesses are still gasping for air. The challenge is well known, and the facts speak for themselves: an estimated £200bn is currently tied up in unpaid invoices and more than nine out of every ten small businesses is owed money beyond their agreed payment terms. Eight out of ten businesses that fail do so because they run out of cash, and that’s despite an estimated 900,000 hours that SMEs spend every day in chasing overdues.
But while the conversation has tended to focus on the damage caused by companies paying late, isn’t it about time that conversation was inverted, and we started talking about the benefits of paying early? Has the pandemic given us the opportunity and the appetite to challenge the status quo, to think differently, and be braver in the way we tackle the cashflow conundrum?
Invest and grow
It is easy to see why a small business supplier would benefit from being paid early. The certainty of cash in the bank breeds a confidence that makes a business more sustainable, that enables them not simply to survive, but also to grow, to invest in the people, processes and technology required to support their longer-term ambitions.
It is perhaps more difficult to see why a larger customer should part with their cash sooner than their stated terms. It is easy – and for some pressure groups convenient – to forget that these firms have responsibilities too, to their own employees and wider stakeholder groups, and have their own cashflow challenges to address.
But what if they could be persuaded that by paying their suppliers early, they would not only strengthen those supplier relationships but also enhance their own cash position rather than weaken it? And what if also they could be convinced that in paying their suppliers early, they not only support a growing UK economy, but could also bring about positive societal change?
Early payment may seem counter-intuitive but for customers and suppliers alike, it drives much-needed cash more quickly into the supply chain. It reduces the hours that small businesses spend in chasing payments, and larger businesses waste in fielding payment calls, bringing benefits to both parties in enabling managers or credit teams to focus on more valued-added activities. It enables customers to negotiate and agree better discounts with their suppliers, and in doing so benefit those suppliers who have even greater visibility and certainty of future business. Conversely, it makes the larger business – the buyer – the customer of choice and enables both entities to collaborate in developing new products and services knowing that the investment in time and resource will bring long-term benefit.
Knowing not only that an invoice will be paid, but also when, similarly delivers wider, societal benefits. It has a direct impact on mental wellbeing, for example, reducing the stress and anxiety that many small business owners have in worrying about where the next penny is coming from. In doing so, it also gives customers the satisfaction of deliver a tangible ‘S’ in their Environmental, Social and Governance (ESG) strategy, supporting the supply chain and doing social good.
There will be some, indeed many, who will take convincing that early payment is really a good thing. But if we are to really change the customer/supplier relationship, and remove the late payment scourge, then repeating the tired mantras of the past won’t get us to where we want to be. To change the world of payments, and transform the entire economic landscape, we need to be more radical, and give suppliers and customers the time, space and tools to breathe.