Recession: Ill wind for small business as big firms batten down: Large companies are putting squeeze on cash flow
Sunday 06 September 1992
As the chill of recession continues, Banair is among the tens of thousands of smaller firms caught in the big companies' cash-flow squeeze.
The big concerns are forcing tougher payment terms, higher rents and lower prices on smaller firms.
VAT administration, licensing regulations and new banking practices, together with the restrictions of the quality consistency standard BS 5750, are adding further to the burdens of the small business sector.
After several years of paying his quarterly electricity bill at the end of the month in which it was received, Mr Haynes, of Horndean in Hampshire, was told by Southern Electric that unless accounts were paid within 18 days he would have to lodge a deposit equivalent to 20 weeks' consumption.
'It not only upsets our payments system but it's discriminatory,' Mr Haynes said. 'If we were to supply Southern Electric they would pay us within 30 to 60 days.' His company is finding the going tough but is surviving.
Peter Day, the customer service manager for the Solent division of Southern, denied that its terms had been changed. 'They are just being enforced more rigidly,' he said. 'With bankruptcies and liquidations in our area up 95 per cent, our income has to be safeguarded. Last year, we had to write off debts equivalent to about 5 per cent of net profits.'
Sudden changes in or crackdowns on terms, to whip up extra cash flow, prompted one national property company to send in the bailiffs at a haulier and merchandising company in Kent, to notify it that its pounds 5,500-a-quarter rent was now to be paid in advance.
For the previous two-and-a-half years the company had paid with two post-dated cheques at the start of the quarter. 'The bailiffs took possession of about pounds 2,500 of air conditioning,' the owner said. 'The company's accounts department would not discuss it, and when I found the senior estates manager, he explained that they needed to 'shake some more cash out of their asset base'.'
Commercial property companies are also pushing rentals far above depressed market rates. Leaseholders are often vulnerable because their contracts are geared to an inflationary environment.
A precision engineering company with premises of 1,250 sqare feet on an industrial estate in Surrey is fighting an attempt to boost its rent by 40 per cent from pounds 7.50 a square foot to pounds 10.50.
'Local surveyors say the market rate is pounds 6.50,' one of the proprietors said, 'and a year ago another company lost out badly with the same landlord in arbitration. But if we go, we are liable for the remaining 12 years on the lease, so we are stuck.'
Bill Poeton, deputy chairman of the Small Business Bureau, a Conservative Party think-tank, said that sudden rent increases were more widespread in the retail shopping sector. 'Many small businesses do not know their rights,' Mr Poeton said. 'They are regularly made to sign agreements, such as leases, under a certain duress, mainly through delaying tactics.'
Pension funds, as the main owners of public companies, are largely behind the rental squeeze, he argues.
Meanwhile, miserable consumer spending forced B&Q, the DIY chain, to demand of its 500 suppliers in June that they deduct up to 10 per cent from their invoices. This helped B&Q to offer an across-the-board, 20 per cent retail discount.
According to its marketing director, Bill Whiting, the move was forced upon the company because of fierce discounting by its competitors.
Andrew Hutchinson, a specialist in company law at the Institute of Directors, believes the small business sector is suffering because of legislation introduced in favour of big companies.
'The costs of, say, waste management or the quality standard are proportionately much higher for smaller companies, and the quality standard, which is semi-regulatory, is being used against suppliers,' he said.
'We are in a period of intense legislation amid the implementation of EC directives. These tend to discriminate against small companies.'
Mr Poeton argues that the problem began when Mrs Thatcher 'jumped into bed with big business entrepreneurs who utilised industrial funds to grow by acquisition, in many cases creating market failure'.
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