Late Paying Larger firms using SMEs to support their own cash-flow

Company debt is a huge problem, but contrived company debt is growing. The latest indicators show that insolvencies are shutterstock_223203397down for companies at least which can only be good news for the economy and so something to be thankful for. In a similar vein, I had a call and request for help from one of the nicest guys I have spoken to in a long time. He was ‘old school’ and his company had run into financial difficulty after five years trading as a limited company and many years as a sole trader. His key difficulty was a recurring problem I see very often and that is the problem of being paid late by bigger companies.

I used the term ‘old school’ as a form of flattery in as much as these people often use words like ‘honour’ and ‘obligation’ and simply ‘do not want to let people down’.  In this case, he paid all his creditors on time or he did until he started to pump his life savings into the company to pay them he thought just until the larger company paid. Unfortunately, the larger company did not have the same feelings of shame and they still haven’t paid 120 days after the invoices were due.

Late payment of smaller companies by larger companies has always been a large problem for SMEs but the problem is getting worse as the recent FSB research tells us and you can learn more here In effect, larger companies often pay late to support their own cash-flow and take a dog eat dog attitude to ensure their own company remains firmly solvent whilst forcing a lot of smaller companies on the brink of insolvency and some into insolvent liquidation.

Who are these larger companies? Well, you would be shocked as I was when I viewed the County Court listings for the UK. It read like a who’s who of the Top 100 companies. I am talking huge names – so why do they do this? Typically these larger companies use the smaller company’s cash-flow to support their own. Often the pressure on the smaller company can be intolerable and on this case, the directors’ health suffered and the company is on the edge of closure. We will be able to rescue the core of the company but will need to downsize in order to survive and the loss of jobs. It begs the question how do these larger companies get away with delay after delay when it comes to paying their invoices on time. The Federation of Small Businesses estimates that 73% of businesses suffer from late payment of invoices. Only last year there was supposed to be an EU directive on the subject but I haven’t seen this getting much publicity although Vince Cable was keen on the idea I understand. The FPB have are is now talk of a ‘name and shame’ list of poor payers? Well, that sounds good to me and you can learn more about this here

It is not as if the directors are asking for anything unusual – just to be paid as per the agreed timescale. Often thirty days turns into sixty days before payment and before too long this turns into ninety days. Where do you draw the line? 

Perhaps my chap may have been old school but he did know the meaning of obligation so when dealing with larger companies, even more, a reason to be careful out there.

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