By Inna Kaushan, co-founder of Solna
Small companies have always found it hard to get paid on time by larger businesses. However, there is now enhanced awareness amongst policy makers of how systematic the issue of late payments is. This is best typified by a new reporting regime for larger companies which forces them to reveal the number of days it takes to pay suppliers.
That said, policy makers can’t be expected to solve the problem exclusively, and collaboration is required from SMEs and stakeholders who represent their interests.
Technology can also help to solve the underlying issue. Aggregate data sets from cloud technology companies can reveal payment trend insights which can be used both to lobby government, as well providing SME trade bodies with a new data point to come up with their own policy suggestions.
Since 2017 Paul Uppal the first Small Business Commissioner has had the remit of promoting responsible payment practices, alongside helping to mediate specific disputes between large and small companies.
Additionally, the Reporting on Payment Practices and Performance Regulations were introduced. This requires large companies to report twice a year on their payment practices and policies. Although encouraging, fewer than 3,500 companies have had to report on their payment practices. The powers of the Small Business Commissioner are limited with no ability to issue fines, and it was reported in June 2018 that just two cases have been investigated to date.
In time these measures may help solve the late payment epidemic. However, in the interim trade bodies representing the interests of SMEs are lobbying for policy makers to make interventions which go even further.
From their own independent research, the FSB (an organisation which exists to support the 4.8 million self-employed people in the UK) found that 84% of small businesses have been paid late by big companies.
In order to hasten change Mike Cherry, the FSB’s national chairman, is pushing for large companies to be forced to appoint a non-executive director, who’ll ensure responsible supply chain practices and to take charge of payment best practice.
The FSB is also trying to persuade the Government to force their suppliers to pay their bills on time, to encourage more SMEs to bid for their contracts. This would help the Government reach their target of small businesses winning 33% of central government spending by 2022. Recent figures revealing that this dropped from 24% to 22.5% over the last 12 months.
Technology can play a part too
Cloud accounting and invoicing platforms, such as Xero, Sage One, Quickbooks, and Solna are now used by hundreds of thousands of small businesses in the UK.
These platforms carry aggregate real time data on a large, and growing, subsection of the SME economy. This data can be used to reveal intelligence on payment trends across all company users, as well as being able to drill down on a sector specific basis.
Xero is already beginning to explore such use of its data, and recently introduced the Small Business Insights dashboard. This is updated monthly and has an ambition to give policy and industry decision makers real time insights into the health of small businesses, including late payments.
The other cloud accounting platforms can provide similar insights. Disseminating these late payments trends will put more pressure on policy makers as well as providing rich data sets to support future SME policies.
The requirement for payment reporting only applies to companies which exceed two out of three of the following criteria: turnover of £36m; balance sheet total of £18m; 250 employees. Whilst this makes it possible to look up the credit worthiness of larger companies, the vast majority do not have to report.
However, SME owners can take action by monitoring the credit scores of new and potential customers. Keeping tabs on the credit score of customers allows businesses to respond to adverse changes in the circumstances of clients by chasing customers for payment or changing payment terms on future related contracts.
For example, invoicing platform, Solna, blends credit score monitoring with automated invoicing. This allows users to access payment insights from their customers through a combination of credit score data as well as intelligence from open rates of invoices.
The accessibility of credit scores creates an opportunity for both trade bodies and policy makers to raise awareness of their importance in reducing late payments and helping SMEs make informed choices about who to work with and what terms to offer.
Collective efforts of policy makers, SME stakeholders and the smart use of technology can improve the fortunes of the millions of business owners who make a vital contribution to the economy.
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By Inna Kaushan, co-founder of Solna