Cash flow and delayed payments

In these difficult times, small businesses are probably more affected than larger ones by delayed payment policies of their customers.  Whether the delay is due to an inability to pay the bill or simply sophisticated treasury management, the effect on the smaller business is potentially squeezing the life out of them.

The Government’s recent announcement of a series of measures to help smaller firms survive the economic downturn has been broadly welcomed by the business community, but I do have some cynicism and scepticism as to whether any effect of this will be felt by the small business community.  This is not a criticism of Government in any way as initiatives such as these are always welcome.  However, my main target is larger businesses.  The very largest of these have always employed clever finance professionals in their treasury departments to manage their cash.  Delaying a payment by even just a few days each month, can have a significant effect for these big businesses in interest saved or even earned.  For the small business, it simply strangles the life out of them.

In many cases, the small business, having managed to get a contract or order from the larger business is reluctant to press too hard to collect payment for fear of losing future work.  The larger business often takes advantage of this.

This cycle of payment is really helping no one.  Many businesses in the UK operate a 30 day policy for payment yet few manage to run to anything approaching that.  I strongly believe that the finances of the nation generally would be in far better order were there to be mandatory credit terms for all transactions.  Of course, the implementation of such an idea would potentially be horrific resulting in increased bureaucracy and potential dispute.  Nevertheless, over the years successive Governments have introduced literally forests of legislation burdening all business with red tape and bureaucracy that adds no value at all to their business.  A system to deal with delayed payment backed by legislation rather than guidance would definitely help all parts of the business community.  I just pity the Government that tries to introduce it!