Late payment warning follows retailing collapses…
The collapse of BHS – with the potential loss of 11,000 jobs – and recent demise of Austin Reed highlights the significant risks facing small companies that provide extended credit to their customers, a leading adviser to SMEs has said.
His concerns echo the views of newly appointed Chamber of Commerce president, James Blackman of Lichfield and Tamworth, who has recently announced that he is launching a campaign to improve smaller companies’ cash flow by taking on the problems of late payment by businesses.
Henry Briggs, senior partner at the Birmingham office of Haines Watts, said that the high street news around BHS and Austin Reed should serve as a warning particularly to companies supplying the retail sector – but businesses in general.
“BHS has 1,200 unsecured creditors from the estimated £42.1m that they are owed. Many of them will be smaller companies – shop fitters, specialist distributors and service providers. It is quite probable that a number of them will not have the resources to survive such a long term hit. It is quite probable also, that suppliers to BHS will have also supplied Austin Reed – a double hit,” said Mr Briggs.
A recent report by MarketInvoice shows that the proportion of payments made late in businesses overall average 62.3% of all businesses – with the culprit by category headed by high street retailers at 69.8%.
“However, late payment is not just a phenomenon affecting suppliers to retailers. There is an increasing trend towards making payments late. The MarketInvoice report for 2015 reveals that the proportion of payments made late in business overall was 46% in 2013, rising to 51% in 2014 – and now in excess of 60%. High street retailers, including supermarkets, are close on 70% but even the public sector performs badly at 61.7%. The better performers are tech companies at 50.5% and banks at 44.7%.
“Big companies are often using their suppliers’ credit to support their own growth or lack of creditworthiness – and they do so at the expense of their smaller suppliers who risk both their ability to expand and indeed the viability of their whole business, in the event of a bad debt. Smaller businesses operate on tighter margins and budgets, their cost of finance will be higher and their business risk may become unacceptable.”
Mr Briggs urged businesses to set in place contracts that establish firm credit terms and demonstrate they will enforce them by strict management of their debts to avoid any getting out of control.
“Exposure of too much trade to one customer is never good business practice but many smaller new businesses may see it as an opportunity they cannot afford to pass up.
“Ninety nine per cent of all UK businesses are small and medium-sized and are important employers. There is no doubt that bad payment practices amongst their larger customers is stunting their growth, which is important to the UK economy as a whole,” said Mr Briggs.
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