According to Theo ‘Dragon’s Den’ Paphitis, 50% of small businesses fail in their first three years. With small businesses constituting 99.6% of all business in the UK private sector, the economic implication of them succeeding or failing is huge. In some cases, as he says, inadequate preparation is the reason, but cash flow is the lifeblood of small businesses and can be the deciding factor in their survival.
As the MD of a company that launched with no investment, I remember a few hairy moments scrutinising the bank account hoping that payments came in before bills had to go out.
Luckily many of our clients pay promptly on 30 days. A common factor of these clients is their understanding of small businesses (as their customers, or because they started small themselves) and the pressure upon them. On the few occasions we have had to chase payment, we were met with apologies, not excuses, but I realise we are probably in the lucky minority.
Casting my mind back to when I completed the PRCA survey on payment terms (which I now realise was the precursor to the recently launched Prompt Payment Code), I remember thinking, ‘what does it say about a company that it finds it acceptable to pay on longer terms than it demands to be paid itself?’
My conclusion was that it shows a lack of respect for suppliers, a questionable approach to ‘doing’ business and sniffs of double standards. Too harsh a generalisation? Maybe, but the implications aren’t great.
This leads to another view I hold quite strongly: how can small businesses like those the Code exists to protect demand to be paid promptly when they delay payment of their suppliers? To be a true success, the Code needs consistency and fairness throughout the supply chain. I am proud to say that Stand pays strictly on the payment terms set, whether this is the newsagent down the road or HMRC.
We did this from the beginning because it felt right and probably also because no one wanted to have to make the ‘excuses’ when people called ‘chasing for payment’. This principle of treating people how you wish to be treated needs to be at the heart of any Code for the impact to be felt by all.
To that end, whether you are an agency, or the client – pay your suppliers on time and make sure you are not the one being chased for late payment.
Laura is Founder and Managing Director of Stand Agency and really does believe cash flow is king.