Late payment to small suppliers by big brands can quickly lead to a crisis situation, according to an interview published by the Confederation of British Industry.
The CBI spoke to Rebecca Seddon, managing partner at business consultancy Process Management International, about the relationships between suppliers and their customers further up the supply chain.
In the interview, published as a video as part of the CBI’s Great Business Debate, Ms Seddon says healthy and positive business relationships are good both for the health of businesses themselves, and for their public reputations.
She said: “Take advantage of that smaller supplier, meaning maybe you don’t pay them on time, for example … and suddenly they’re in a crisis, a cash flow position, and they’re out of business.
“So that means, next time you need that same service, they’re not there.”
Of course, this is an observation of which small and big businesses alike are already aware: that late payment can disrupt any company’s cash flow position to the point of insolvency, and that smaller firms are particularly vulnerable as they are less likely to have spare funds coming in from elsewhere.
And while there are signs that some larger customers are taking this on board and adhering to voluntary initiatives like the Prompt Payment Code, small firms can still force the issue by committing to stringent credit control measures.
These can include background credit checks before approving a line of credit for new customers; different credit limits depending on the customer’s status; effective and efficient invoicing when a bill becomes payable; and swift enforcement of overdue invoices to recover bad debts.
By adopting these kinds of measures, companies can level the playing field and send a clear message to the big brands that it is the legislation surrounding late payment that determines when an invoice must be settled, and not simply the whim of their accounts team.
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