How do small and medium-sized enterprises (SMEs) deal with persistent late payers that damage their cashflow and jeopardise their very survival? A new piece of research from Barclays Bank suggests many SMEs are getting tough with late payers – if that's the case, it's not before time.
There is no doubt that late payments continue to dog SMEs – 85 per cent of small businesses say it has been a major issue over the past two years, while nearly half say their most consistently difficult creditors are paying late three times a year or more. Last September, the payments organisation, Bacs, estimated that SMEs were owed £36bn in late payments and there's no reason to think the situation has improved since then.
We know how difficult late payments can be for SMEs. Barclays' own data suggests that one-in-five businesses going bust cite bad debt as a significant factor in their demise. Among those that survive, SME owners are often forced to dip into their own funds or borrow against their personal assets, while waiting for payment.
There are some steps SMEs can take to protect themselves – conducting credit checks on customers, for example, chasing bad debts more efficiently and ruthlessly, or demanding payment upfront. But the problem persists and has got steadily worse during this economic downturn.
We may be about to see a new stage in the battle, however. Barclays says SMEs are now simply refusing to do business with their most persistent late payers. One in five companies say that over the past year they have declined to do business with customers who have paid late in the past.
This is the nuclear option, of course, and for some businesses it may feel like cutting off your nose to spite your face. But in the end, faced with a customer prepared to inflict financial damage on the business, often repeatedly, by not paying their bills on time, what other choices do SMEs have?
Also, the more SMEs take this hardline approach, the more effective it is likely to be – especially if they act in concert. A customer that knows its business won't be accepted anywhere should it fail to pay on time is much more likely to be a timely payer.
It's a small world out there. In many industries, SMEs will know their competitors and their customers very well. By working with one another to target those customers playing everyone for a fool, they stand a better chance of getting paid. The word "blacklist" has a pejorative feel, but there's nothing wrong with a blacklist of customers who won't settle their bills.
It may be that SMEs feel most comfortable taking this approach with smaller customers – bigger businesses, though they're often among the worst offenders, are less likely to feel threatened by a boycott from one sector or area of the country.
Organise the campaign effectively, however, with everyone standing firm and it should be possible to take on even the largest organisations.
SMEs suffer a double whammy in a culture of late payments. Not only are they more likely to be on the end of poor treatment – because bullying the small guy is the easy option – but they're also less likely to have the cash reserves needed to cope. And if customers pay your business late, it becomes harder to settle your own bills on time.
By banding together, however, SMEs are in a position to flex their muscles much more aggressively.
They should not hesitate to do so: the late payments cycle is damaging everybody's business – as well as the wider economy.
It's time to make a stand.
Trading platform signs up Scilly transport firm
Asset Match, the trading platform for small unlisted companies launched last year, is hoping 2013 will be the year that it captures investors' imagination. It has made a good start, announcing that the Isles of Scilly Steamship Company is joining the platform – the business provides the only links, by plane and ship, between the UK mainland and the islands (right).
Asset Match bought the private exchange Sharemark last autumn, with its companies transferring to the platform following the acquisition. It now lists around 20 businesses and operates through regular auctions of shares, matching buyers and sellers.
The platform has appointed the former Bank of England executive Iain Saville as a non-executive director and is in the process of finalising the line-up of a new advisory board, expected to include Giles Vardy, former chairman of the Plus Markets junior stock exchange.
Small Business-Man of the Week: John Pallagi, founder, Farmison
We launched Farmison.com in October 2011 – I had worked for many years as a restaurateur, and I'd got to know some fabulous British artisan producers; I couldn't understand why they weren't getting the opportunity to wave the flag nationally, so we began working on a way to give consumers a much wider choice.
"Farmison works with more than 70 farmers, so that consumers and restaurant owners can order fantastic, high-quality and seasonal produce. Once you've ordered online, your food is delivered within 48 hours.
"We're all about promoting the producers whose foods are not available in the supermarkets, with a particular specialism in greengroceries, cheese and butchery.
"We could not have chosen a more difficult economic time to launch, but I honestly believe that while there are certain luxuries people will give up when money is tighter, for our target market at least, high-quality food is not something on which they want to compromise.
"We don't know how business might have been had the economy been better, but we're really pleased with our progress. We're doing double the amount of repeat business we were expecting.