As regular readers know, my blogs aim to offer up straightforward, practical advice to help improve daily business life. This week I am on a slightly different track after reading about plans to tighten up the Prompt Payment Code.
Many small businesses have larger companies amongst their customers. After all, commercial contracts can bring in big bucks. You will also know that working for larger business comes with caveats – often the most challenging of which is getting paid.
All this was thrown into sharp focus last year when the construction giant Carillion went under leaving an army of suppliers out of pocket.
At Ozlop we regularly meet small businesses waiting to get paid so that they can settle their own debts.
Cash is a lifeline for any small business. That’s why I’m not surprised to learn that the Prompt Payment Code is being reformed. The long-term aim is to tighten up payment terms to fewer than 60 days and possibly fine the companies that fail to comply.
Currently, the Prompt Payment Code is a voluntary scheme that big business sign-up to but then appear to flout. In July, BT, Prudential and BAE Systems were among large businesses suspended from the code for failing to pay suppliers within agreed terms. It may not be great for their corporate image, but the consequences for their suppliers are much tougher.
Government figures show that more than one in ten companies struggle to pay their staff and other costs due to late payments. That’s why the Government should take a much tougher stand against the practice and lead by example!
When you work in a small business waiting 30 days to be paid is a challenge, but 60 or longer can be crippling. It is my firm view that in this modern age, when card payments can be made in real-time, that small business should not have to wait any more than 14 days to be paid.
It seems to me that as consumers of products and services from large enterprises we have to pay for everything in advance from basic groceries to satellite TV, mobile phones and energy… so why is it okay for small businesses to wait six or seven weeks for their money? It could mean they don’t have the cash to pay staff or rent!
At Ozlop we specialise in delivering timely and accurate books that will help your business identify financial troubles before they arise.
We encourage our customers to be clear about their payment terms and hot on chasing customers for payments. We ask our own customers to pay by direct debit, so they know that they are covering their bills in a timely way and Ozlop has a healthy cashflow.
Talking money with customers can be tough but it is a necessity, my blog next week will give you some advice on what to cover.
David Vine – small business specialist and Managing Director at Ozlop.