It’s often the case of David v Goliath for many small businesses when it comes to dealing with large firms and their supplier payment cycles.
The biggest risks for small businesses when trading with large firms are extended payment terms, concentration of revenue and the risk of contagion resulting from the failure of these firms.
Unfortunately, small businesses have little to no bargaining power when it comes to credit control and payment term negotiations with large firms.
The manipulation of payment terms can have detrimental cash flow implications for small businesses; they have to look elsewhere for funding to bridge the working capital gap.
Purbeck Insurance Services welcome the news that the Small Business Commissioner, Paul Uppal, has called for the introduction of a traffic light system for small businesses when engaging with larger firms.
The proposed system will enable small businesses to assess the payment performance of larger firms.
These calls have come as a result of payment data analysed by the Small Business Commissioner and Lloyds Bank Commercial Banking which found, based on sample data from over 7,000 firms:
65% of large firms take more than 30 days to settle invoices with 21% taking more than 50 days
The average bill payment time is 37 days