Home > Uncategorized > The FSB and “late” payments to SMEs

The FSB and “late” payments to SMEs

This issue is in the news again and yet again we have a degree of hot air but little in the way of actual solutions. I am once again going to sound defeatist and simply state that there is very little a business can do about this. Having said that there are some points to consider and as with many things in life, preparation is key.

Before we get to that, this is a point worth answering

While the FSB has applauded Government initiatives on transparency – from this month, large companies must declare what percentage of their payments to smaller suppliers are settled within an acceptable 30 days; and what proportion go unpaid for an unacceptable 60 days or more

The first question is why is 60 days “unacceptable” if its agreed between the two parties? Also the FSB must surely know that in certain sectors 60 or even 90 days, are standard terms. As difficult as it is to defend major retail chains, if they agree 90 day terms then thats between them and the supplier, not an external “ombudsman”.

There seems to be little understanding that payment terms are as much part of the contract as the price. In fact they are an element of the price. If a supplier throws his hands up at 90 days payment terms when he has accepted an order then he can only blame him/herself. No amount of appealing to ombudsmen can change that and nor should it.

Business owners have to consider the terms of payment as fundamental to the contract. If the payment terms are extended then the cost of finance should be calculated into the decision of whether the business is worthwhile. In addition to the cost in pure financial costs, owners should also consider the time and effort required to monitor and manage late paying debtors and a tight working capital.

There is also a defeatest attitude to payment terms. Ive seen businesses haggle over price but seemingly accept that extended payment terms are “non negotiable”. That is nonsense.

Simply put, both sides have to find the terms they are happy to work with and then come to an agreement. If the client will not shift then its sell and price accordingly or walk away but dont accept and then complain its “unacceptable”

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