Three years ago, when the pandemic hit, I was working with thousands of small businesses belonging to a membership body. For many of them, sole traders, and micro-businesses, cashflow dried up as their work and customers drifted away. The suffering I saw was awful - and for many it was their invoices and bills not being paid by their customers that tipped them over the edge. After 30 years in business, it was the first time I recognised how significant a threat late and slow payments are to a small business. Not only a threat to their business, but to their mental and physical health.
I talked to experts and business organisations to better understand the size of the payments problem, like the Federation of Small Businesses (FSB), the Small Business Commissioner and others. I found the impact of late payments on small businesses cannot be overstated. Operating on a tight margin, relying on timely payments to pay bills, cover expenses, and invest in growth. When payments are delayed, small businesses struggle to pay their own bills leading to cash flow problems that can threaten their survival. It's particularly damaging for new, or small, businesses that lack the resources to weather extended payment delays.
Last year, the FSB Small Business Index estimated that around 400,000 small businesses were at risk of failure purely because of poor payment practice. Let's assume each small business is a minimum of one person, each with a family, that's 400,000 families under threat. If they have two employees that's 800,000 families. That stress can kill a small business. The cost to the average small employer of staff absence due to physical, or mental health, conditions surpassed £3,500 last year, racking up a £5bn cost to the small business community.
The problem of solving slow and late payments is simple. As when you employ a tradesperson, you decide when to pay the builder, and it's the same with big (and small) companies. Someone at the top decides on how fast or slow suppliers get paid - a decision is made and it trickles down to the people who follow orders and make payments. It's what I call payment culture. Over the past three years, I've come to understand a lot about good and bad payment culture - and how to change it.
Fundamental to fixing the problem is to create a culture of prompt payment. It requires a shift in attitude: companies recognising the importance of paying promptly and valuing their relationships with suppliers and customers; a collaborative approach, with all stakeholders, including government, large companies, and small businesses, working together to create a more equitable payment system.
Our work at Good Business Pays covers all these areas. Our website highlights company payment performance, including which companies pay fast and those which take too long to pay. We recognise the best and call out the worst. Our reports define what good and bad payment culture looks like and our work with leading business organisations champions the improvement of payment culture with their stakeholders and members. We collaborate with Government to review and strengthen regulations affecting payment performance.
All this is free for businesses, large and small, to access www.goodbusinesspays.com
