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Large Firms Guilty of Late Payment

When a small company wins a contract with a large customer, you might think that it’s good news all round. However, many big companies are leveraging their bargaining power to delay payments to suppliers, which can make their own cash situation better – but at the expense of the small suppliers who are kept waiting for payment. This creates huge issues for SMEs, restricting cash flow and causing late payment to become a problem.

The payment processing firm Bacs has figures that indicate small and medium firms are owed upwards of £35bn in unpaid bills. When overall lending figures to SMEs are estimated at £56bn last year, this really puts the problem into perspective. This not only shows that ongoing access to funding is still not enough, but also shows how late payment can easily reach the level at which it starts to strangle a business. This will obviously limit growth prospects, as well as causing many firms to go under.

The government is already struggling to address lending problems. Slow payment is also an issue – big businesses often compel their small suppliers to accept invoice terms of 120 days which they need to accept in order to win the business. It’s therefore a problem that’s hard to address, as small businesses will naturally have fewer bargaining chips than their large customers, therefore making it hard for them to resist this.

There have been a number of cases highlighted in the press – Reckitt Benckiser regularly uses 120 day payment terms, Dell have been known to pay 18 days late on 90 day payment terms, and Bupa paying after 130 days.

One way to address problems such as these is with invoice finance. This can release the value of your invoice within 24 hours, meaning you won’t be kept hanging around for months on end. So, when your company wins a big contract, you can enjoy increased cash flow rather than being strangled.

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