Running an SME manufacturing firm is tough enough when it comes to juggling cash flow. It is made significantly harder when customers at the top end of the supply chain impose long, drawn-out payment terms on SMEs, who are still expected to pay their own bills in 30 days.
It is a blight that affects businesses across the UK economy. Tony Robinson OBE is Britain’s small business champion and is working for the day when SMEs are treated fairly.
My dad was a manufacturer. He imported Portuguese pinewood and his factories turned it into boxes, fruit trays, stillages and pallets.
He had a personal relationship with the chief buyers at big companies like Schweppes, Birds Eye, Batchelors and Metal Box.
My mum had a personal relationship with the people in the accounts departments who paid our invoices. Both these big company employees received a salmon from us for Easter then port and brandy at Christmas.
When I was 17, I had to pass my driving test quickly. This was no easy task for someone in the lowest 3% of the population for spatial awareness. I managed to do it in three months so that in school holidays I could drop off samples at our major customers around the country and pick up a cheque from them.
My father died when I was 18. He never experienced a major cash flow problem or the costs associated with unfair contract payment terms and late payment.
Today, ‘the system’ has replaced personal relationships in business because it is more effective at wealth creation – money makes money.
But the system has been rigged by many of the largest corporations to ensure they make the most from withholding payment for as long as possible for products or services supplied by companies down the supply chain.
Manufacturing Finance Summit 2019
This one-day event will convene a select group of manufacturing leaders to collaborate and develop strategies for growth and investment, and to prepare for the impact of global trade factors like Brexit.
Join us to drive your organisation to the next level of financial performance. Click the banner below for more info …
There is no trickle-down from these large corporations – 82% of annual income creation goes to under 1% at the top of the pyramid. It is primarily a US-inspired scam that was readily accepted by many UK large corporations.
It is allowed by the UK government and applauded by the financial sector, which profits from the financial products desperate small businesses turn to in need.
Overall, the average time that small and micro businesses must await payment of their invoices is 72 days.
This means 5.7 million businesses that are micro, small and medium-sized, including more than a quarter of a million in manufacturing, live with a permanent cash flow migraine.
Sometimes, such as when a large player like Carillion with its 120-day ‘take-it-or-leave-it’ terms, goes bust, a migraine becomes either severely debilitating or fatal.
It’s an epidemic
The media may mention the 20,000 small businesses affected in the Carillion supply chain but they don’t talk about the many thousands more routinely affected by day-to-day cash flow that has dwindled to a trickle.
They never mention the number of large corporations making the playing field so tilted through unfair payment practices.
Many of my clients, colleagues and friends are small-scale manufacturers, but many more are no longer in business because they couldn’t keep going. Poor cash flow and its associated costs stifle innovation, growth and competitiveness.
When added to the high basic cost of business in the UK, such as utilities, telecoms, transport, regulatory compliance, payroll ‘taxation’ and rates, it makes a pivot to doing something else mightily attractive. It is the UK’s great loss, because nearly all the innovation, new jobs and support to our communities come from small businesses.
Carillion is only the latest example of hundreds of large organisations with whom our government does business, and which make money out of giving their suppliers 45, 60, 75, 90 and 120-day take-it-or-leave-it payment terms, or systematically delaying payment when due.
I have campaigned for more than 20 years that government should not buy from, contract with, licence, bail out or fund any organisation, which does not pay all its bills within 30 days.
Supporting me are many famous entrepreneurs and most of the national small business membership organisations.
If this #PayIn30Days principle was adopted by government, it would positively affect cash flow in whole sectors such as defence, where government spends £19.8bn each year, and health, where government spends £70bn on suppliers to the NHS.
In total, government spends £250bn each year on commercial suppliers. Imagine the impact a mandated acceleration in payments would have on our small businesses!
At least £30bn could be circulating over 40 days faster among all Britain’s SMEs if the government took the lead on this.
The only losers would be financial institutions, who gamble with the constant volume of money owed and those that service the crippling debt of most small business owners through loans, factoring, invoice discounting, asset finance and credit cards.
Small is beautiful, but big is powerful
Of course, the campaign has yet to succeed. As Ernst Schumacher said 44 years ago in Small is Beautiful, ‘From bigness comes impersonality, insensitivity and a lust to concentrate abstract power,’ and, ‘Where is the rich society that says “Halt! We have enough!”’
Schumacher called it, ‘the single-minded pursuit of wealth’, and government is complicit in allowing the largest corporations to achieve this.
This is why small business owners are, on average, earning 20% less than 10 years ago and why there are record levels of poverty, food banks, homelessness and destitution at the very margins of our society.
Government says it listens. During the 20 years of the #PayIn30Days campaign, I’ve seen scores of ‘lip service’ government enquiries, reviews, complaints legislation, prompt payment codes, commissioners, tsars and champions which all maintain the status quo by relying on the fact that small business owners cannot afford to complain about their biggest customers.
No complaints equals no problem. The Labour Party included #PayIn30Days in its last general election manifesto, and there are many local, regional and national business memberships organisations getting their members to sign up for #PayIn30Days.
Some, such as the Forum of Private Business, FSB, IAB, Enterprise Nation and some Chambers of Commerce are lobbying hard. Let these organisations know how important this issue is to you.
When it comes to your own cash flow, always try to negotiate payment terms and, whenever you can, say ‘No’ publicly to unfair contract terms.
Companies supporting #PayIn30Days have reported substantial growth since reducing the time taken to receive payment. Don’t let the system beat you.
Build personal relationships with those responsible for your payment terms and payment practice. It’s difficult, but this worked for my dad and still works for my business partner today.
Email the Small Business Commissioner supporting #PayIn30Days, explaining why we don’t complain and why improving payment practice among those large corporations with which government contracts is so important.
Finally, follow me on Twitter @TonyRobinsonOBE and RT the #PayIn30Days tweets. Come and say hello at conferences which book my little show.
And add your business name to our ‘Small is Beautiful’ Roll of Honour‘. Together, we will get the cash flowing.
Tony Robinson OBE was honoured for his work on behalf of small business in the UK.
He is co-founder of the #MicroBizMatters Movement and #MicroBizMatters Movement Day, and is on tour with his one hour, ‘Micro is Magic’ show.