Getting business leaders thinking about fair payments

By using the resources available and taking more pro-active approach to payment practices, business leaders can improve their chances of getting paid on time and in good time

Getting business leaders thinking about fair payments 

Getting paid on time matters. This is especially true for SMEs, who typically operate on lower reserves and tighter margins. Prompt payment improves cash flow within an SME, which in turn helps them to restock, invest, repay debt, and protect jobs. It also improves productivity by reducing the time taken to chase late payments. This is particularly important for small businesses who can lose up to a day a week chasing down debt owed. 

Additionally, a healthy supply chain can enable SMEs to negotiate mutually beneficial, long-term partnership deals with suppliers as it establishes a strong track record of business. It can boost a business’s reputation within its sector and encourage other suppliers to choose to join their supply chain, rather than their competitors. 

Yet, far too many SMEs struggle with being paid late, have long payment times in contracts, or suffer from poor payment practices at the hands of larger companies. By taking a more proactive approach to contract negotiations, as well as considering their own approach to paying suppliers, business leaders can minimise disputes and get paid more quickly. 

So, what exactly can they do?  

• Clear contracting – supply contracts are often unclear, unwritten or too complex, which can result in disputes. Negotiating contracts that are written, clear and with simple clauses relating to payment times reduces ambiguity and avoids disputes. 

• Undertake research – the Government requires larger businesses to publish details of their payment performance in its website. This allows businesses to know before they contract how many of their invoices are paid on time and in what timeframe. 

• Knowing their rights – there is a range of legislation relating to payments, including a statutory right to compensation and interest when businesses are paid late. Knowing these rights can help businesses avoid or challenge late payments. 

Support available 

The Office of the Small Business Commissioner (OSBC) is an independent public body established by Government to tackle late payments and unfair payment practices. It provides a free service supporting small businesses experiencing late or non-payment of invoices by larger businesses in the private sector. OSBC has assisted in recovering over £8 million owed to small businesses. It provides a range of advice and support for businesses on late payments and payment terms, including signposting to other relevant organisations. 

The OSBC recently launched a new Fair Payment Code. The code rewards businesses that adopt fair payment practices with their supply chain. The code is ambitious in setting high standards including a Gold category for those businesses paying suppliers within 30 days. The code aims to support businesses to improve payment practices and encourages their transition to Gold over time. 

By using the resources available and taking more pro-active approach to payment practices, business leaders can improve their chances of getting paid on time and in good time. To find out how the OSBC and other services can support SMEs in getting paid and securing fair payment terms, visit the late payments and unfair payment terms page on the Alumni Hub. 

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