The aspiration of many small businesses is to sell products or provide services to larger organisations with stronger brands, in the hope that such relationships will help them build and run successful businesses.
But, as it often turns out, many large organisations take too long to pay the small suppliers who depend on reliable, regular invoicing to cover their own costs.
It is common knowledge that larger firms are responsible for much of late payments made to Small and Medium Enterprises. Small Business Owners frequently complain that firms bigger than their own are responsible for most of their total late payments.
And the culprits, come from all sectors. From food and beverage, to banking and finance, through telecommunications and oil/gas conglomerates. Oftentimes, disappointingly so, the late-paying clients are well-known organisations that can afford to pay sooner. They know themselves, hence there is no need to name and shame them.
These big businesses unashamedly abuse their position in the food chain and neglect and/or refuse to pay their bills on time. What this means is that they take unfair advantage of the reliance of small businesses on securing and retaining their patronage; and openly use small businesses as an alternative to banks.
What are late payments and what effects do they have on the operations of small businesses? These are debts that are overdue by at least one or more given periods. Payment terms average 30 days long. Small businesses are often forced to wait between 30 and 60 days, and, sometimes, up to 90-120 days, to get paid for products sold or services rendered.
For some big businesses that act in ways that border on the unethical, they could engage in delaying tactics. Even when contract terms require an invoice to be settled in 30 days, payments almost always take longer. It is not uncommon for a 30-day invoice to be queried, for real or conjured ‘error’, on the 30th day, and the debtor will gleefully return the invoice to the bottom of the pile for another 30-day wait!
The effects of late payments on small businesses are many. They put the expansion plans of small businesses on hold as they cannot invest in their businesses and grow to their full potential. They are unable to buy new equipment. They cannot pay or hire staff. They spend time and money chasing late payments.
The corporate Goliaths must not be allowed to continue this business as usual, whereby their unequal relationships with small businesses means that small businesses routinely suffer from late payments. How can small businesses take the pain out of late payments? What should Small Business Owners, and government, do when client payments are delayed?
Small businesses must work hard to maintain good housekeeping and sensible credit control procedures. They must invoice regularly and hold clients to their terms and conditions. They also need to track and monitor their payments, chase them, send reminders and have cut off points beyond which they cannot extend credit.
New clients must be assessed for credit-worthiness and, when inevitable, the business must be bold enough to let some work pass.
It is also suggested that businesses that experience late payments should be entitled to charge interest, in addition to the base cost. Understandably, Small Business Owners are reluctant to charge clients interest, for fear it may impact on their relationships with the larger businesses who could always use someone else.
Which is why government must step to buck the trend. Because small businesses don’t have the power to take on big companies, government must respond to the calls for a level playing field in payment practices. Beyond acknowledging the contributions of small businesses to the nation’s Gross Domestic Product, and making funding available for the profitable running of their enterprises, the time has come for Government to create an Office for Small Business Debts, akin to the Consumer Protection Council (CPC), and headed by a high-ranking appointee, with the power to act as a national champion for small businesses and receive complaints from SMEs, towards resolving payment disputes involving their bigger brethren.
It would also help for the various Chambers of Commerce to take this as a cause, and call for legislation along the lines of the European Union’s Late Payment Directive. The Directive aims to achieve ‘a decisive shift to a culture of prompt payment’ and requires debtors to pay interest and the reasonable recovery costs of the creditor if they do not pay for goods or services within 60 days for businesses and within 30 days for ministries, departments and agencies of government.
Government should consider, and enact, a similar law, to prevent small businesses from continuing to be preys in the hands of big businesses.