Small and medium-sized businesses in the UK are owed £67.4bn in unpaid invoices, according to the Asset Based Finance Association (ABFA).
That’s up 8% from £62.5bn last year and 36% from £49.5bn in 2011.
Previous research from the ABFA revealed that SMEs are waiting an average of 72 days for invoice payment, up from 61 days in 2009.
It seems that despite the economic upturn, businesses are actually getting worse – not better – about paying other businesses. Is that right? No. Is that fair? No. So why is this allowed to happen?
Partly I blame the recession for encouraging businesses to string out making payments for as long as possible in order to boost their own cash flow. I can see the logic to that, but the problem is that if we all adopt this strategy, what happens? Ultimately, we all end up waiting longer to get paid.
As the owner of a small business myself, late payments are something that I care passionately about. And I think I’ve come up with a very simple solution to the problem:
All businesses – large and small – should settle their bills with one another within 15 days (unless there is a genuine cause for dispute) or face a (very big) financial penalty.
There are three big benefits to this as far as I can see:
- The cash flow of the entire UK business community would improve dramatically, sparking economic growth. If businesses could feel confident that they would be paid within 15 days, they could plan better and react more quickly to opportunities. They are also less likely to need to borrow money.
- It would save a lot of time and money. Chasing unpaid invoices is costly in terms of both time and money. Just think what business owners could do with that time and money if they could channel it into other areas of their business.
- It would cement relationships. Unsurprisingly, businesses tend to like working with businesses that pay them on time – funny that! When a business pays on time, its supplier is more likely to see it as a valued customer, which means that it should enjoy a higher standard of service than its competitors.
As far as I can see, the business case for paying within 15 days is overwhelming. So it would be great to see some large, well-known companies that claim to embrace sustainability adopt this approach. In doing this, they would be enhancing the sustainability of their supply chain and setting a good example to the business community as a whole.