When the going gets tough, the tough get going – one cliché that is certainly proving to be the case for many small businesses in the current economic climate, particularly those who have dealings with big companies.
The big boys are certainly getting tougher – one might say they have to, to survive.
However, there are ways and means of ensuring sustainability, without resorting to unethical practices. One of the more worrying, concerns the settlement of invoices, affecting cash flow and threatening the very existence of small businesses.
Reports are coming through that many are flexing their corporate muscles in an area where small businesses are the most vulnerable. By extending the time they take to pay invoices, they are effectively using small companies as an unofficial source of credit.
Some small suppliers are finding that terms and conditions are being changed, sometimes at very short notice or in the case of the high street chain, Alliance Boots – retrospectively.
Alliance Boots wrote to their suppliers this June kindly informing them that from April 2008, their bills would now be paid up to 75 days from the end of the month of the invoice, with a 2.5 per cent settlement fee.
What this means in reality, is that not only are their customers having to wait up to 105 days to be paid for the goods or services they have already supplied, but they are not even going to get all the money they are owed. This is outrageous. How would Alliance Boots feel if their customers tried to do the same?
These kind of tactics were widespread in previous years, so much so that legislation was introduced in 1998 allowing small businesses to charge interest at up to 8% above the existing base rate on debts due from large businesses.
It sounds great in theory and at least sends out the right message, but many small businesses do not use this legislation, for fear that the large company will simply take their business elsewhere.
And in any case, it only applies to late payments, something Alliance Boots have circumvented, by changing their terms and conditions. To use another cliché, they have moved the goal posts!
At a recent FSB event on debt at Coventry University, use of the Late Payment of Commercial Debts (Interest) Act 1998, was the subject of long discussion. Everyone was aware of it, but few actually used it, proving that legislation is not the answer here.
Established businesses at the event commented that the key was to understand your product’s worth, maintain good communications with your customers and be wary of ‘too good to be true’ orders. Rather depressingly, there was also an acceptance that some losses are inevitable – either through insolvency or fraud, with some industry sectors being more prone to problems.
Given that it is universally acknowledged that times are tough, the approach being taken by the likes of Alliance Boots is totally unacceptable. The fittest will survive – that’s business, but surely not by any means? After all, no one likes a bully.
* Denise Craig is the West Midlands policy manager for the Federation of Small Businesses.