Supply chain · 11 July 2017

Over a third of small suppliers expected to do business on uncontracted payment terms

sign paper deal contract agreement hand pen on desk two people flat business illustration vector top
Contracts without a specified payment date has severely restricted the cash flow of small firms

Almost one in four small business owners has been handed uncontracted payment terms by a large client, according to new research, as unethical practices at the top of Britain’s supply chains threaten to roll-back the country’s trading power.

A study of over 1,000 small firms, undertaken by invoice finance provider Crossflow Payments, exposed the impact of unfair payment terms on the working capital of small firms, which in turn could be weakening the UK’s economic prospects in the post-Brexit environment.

According to the research, volatile cash flow through late payments caused over half a million small exporters to stop trading overseas, and the problem appears to be worsening.

Over one in ten small business owners said payment terms had become more aggressive in the last 12 months.

A subsequent impact of uncontracted payment terms has been the negative effect further down the supply chain. Some 16 per cent of founders admitted having to delay payments to their own suppliers due to unstable cash flow.

Meanwhile, almost one in ten said the situation had prevented them from paying staff on time.

Commenting on the findings, Tony Duggan, Crossflow Payments CEO, warned small suppliers were facing a “working capital crisis” at a time of wider economic uncertainty.

“We face a difficult economic future as we prepare to leave the EU, so we need to find solutions for our homegrown businesses to be well placed for Brexit,” he said in a statement.

Some 12 per cent of respondents said a fair and responsible payment programme would enable them to target overseas markets.

Late payments and long payment terms have long contributed to a culture of supply chain bullying, and the latest findings suggest government efforts to tackle the crisis have yet to protect small firms.

In April 2017, the first stage of duty to report regulations was introduced by to help small businesses access the estimated £266bn held up in late payments by larger clients.

New rules will eventually force big businesses to publish the average time taken to pay suppliers, in the hope public accountability will incentivise prompt payments within companies.

However, Crossflow Payments research suggested large firms could exploit a lack of awareness around supply chain accountability within the small business community.

Duggan warned that clients could rewrite extended payment terms into contracts and  “make a bad situation worse”.

“An unintended consequence of the rules is that large corporates are likely to respond by negotiating longer payment terms with suppliers to shift the goalposts and create the illusion that they are paying on time,” he added.

Payments scandal: It’s not late payment, it’s unfair payment terms to start with

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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