FSB figures show 400,000 firms are at risk as a result of late payments and delayed invoices. This episode explores the steps you can take to get paid promptly and details a new campaign aimed at changing the culture of late payments.
FSB figures show 400,000 firms are at risk as a result of late payments and delayed invoices. This episode explores the steps you can take to get paid promptly and details a new campaign aimed at changing the culture of late payments.
Jon Watkins
Welcome to the latest edition of the First Voice podcast brought to you by First Voice magazine, the official flagship magazine of the Federation of Small Businesses, and the go-to podcast for news, tips and important information for small businesses and the self employed. In this episode, we will be revisiting an issue we've touched on a few times in recent months, and one that severely impacts small businesses, and that is the issue of getting paid promptly. According to FSB figures, some 400,000 small firms are currently under threat as a result of late or unpaid payments. And a third of all small businesses are impacted in some way by being paid late. So in this episode, we will take a look at some of the things you can do as a small business to improve your chances of getting paid on time, and to tackle late payments you are owed. And we will look at how a campaign that is currently being backed by FSB and the small business commissioner is helping change the culture of late payments in the UK. To do that, I'm joined by three guests. Terry Corby is chairman of Good Business Pays, the campaign launched to encourage the UK's largest companies to fast track payments to smaller suppliers. Liz Barclay is the government's Small Business Commissioner. And we're also joined by FSB's. Alan Soady. Thank you all for joining. I'll kick off Alan and Liz, with you if I can. And I'd like to ask of you a little bit around the scale of this issue right now. Just just how big a problem is this lid? What are some some of the numbers around?
Liz Barclay
Well, I think, John, you have given some of the most up to date numbers already. And we do tend to depend quite a lot on the FSB to do the research to tell us the numbers. But if we are talking about 400,000 small businesses, that are being affected to the point of possibly failing this year, because of late overdue delayed payments, then that is quite serious; we do lose quite a large number of small businesses in any one given year, because there are businesses that start up that don't succeed. There are businesses that are, you know, a year or so into their existence that simply don't find themselves viable and don't want to continue. There are all sorts of reasons why we lose small businesses. But we really do need to do the absolute best we can to stop viable, small businesses being defeated by poor payment practices by their customers. And I think the FSB has got the scale of it. What I am seeing is the impact of it. And the impact goes far wider than just simply failing businesses. There's an emotional impact there as well. People who are not getting paid on time, are really struggling with sleepless nights. They're struggling with mental health issues. And they themselves are then in the position where they can't pay their suppliers. And so the vicious circle widens, and the ripples of one small firm not getting paid can be huge.
Jon Watkins
Yeah, the numbers a pretty big Alan, aren't they?
Alan Soady
Yeah, they are. And even before the pandemic, we knew that, in terms of businesses actually going out of business as a result of late payments, it was at about 50,000 a year. And not surprisingly, during the pandemic, the problem of late and delayed and poor payments has got worse. And we found that 62% of families who we surveyed, experienced an increase in late payments or even in some cases, frozen payments during COVID. So there is the danger that that 50,000 number does get even higher without action being taken. And I think where you look at the the cause of this, from the bigger business end, with bigger businesses who have poor payment practices, I think in some ways it divides into two camps, you have those where that is part of their business model, and that they deliberately choose to keep people waiting 60-90 days even more sometimes, and that needs to be addressed. I think you also frankly, get some that are just rubbish. And that needs to be sorted out as well. In a way the latter category is maybe the easier one to target at first. But the former category where it's actually built into their business model absolutely needs to be to be stamped out. So it's a cultural thing in two different ways. It's surprising sometimes at FSB we will have private conversations with perhaps a chief executive of a big business that we've been hearing reports of quite poor payment practices. And, and sometimes it does come as a surprise to them that they're not aware of what is going on in their finance departments and so on. And in some cases, it can lead to a positive change, they can go back to their people and say, Actually, I want this sorted out, we have seen examples of where that actually did happen. Other examples of where you get warm words, and then there's nothing and that's why there's a need for for more pressure from what actions we take.
Jon Watkins
Yes and Liz, we talked about that 400,000 figure of firms that are under threat, but you know, what are the other sort of day to day impacts on small businesses and their owners, you know, I'm thinking in terms of, of constant stress and concerns about cash flow and pressures to pay salaries and so on. Presumably, that's putting quite a lot of pressure on them in a day to day sense.
Liz Barclay
Absolutely. And of course, small businesses are really close to their employees, you know, the last thing you want is to have 25 employees who've got families of their own and bills of their own to pay and not be able to pay them. So there's the ongoing concern about that. And of course, even the smaller businesses who perhaps don't have any employees, but do have suppliers to pay, find it really stressful, because they're having to, to delay payments to suppliers that they know that they are going to be dependent on in the future, and that they've possibly worked with for years. And I think the point that Alan made about big company bosses, not understanding what's happening in the payment departments is one part of it. Another part of it is that payment departments and people who work in payment departments have very rarely ever run small businesses themselves, or been freelance, or been sole traders. And they themselves are quite often surprised when you say, look, that payment, that £300 payment to that small business is much more vital and much more important to that business, then a big bill of maybe £30,000 to another big business that you work with. So we've really got to start communicating across the business sectors. One small business said to me the other day: 'I was before the pandemic, getting 60 days credit from my small suppliers. But now they want to be paid in 30 days'. And my question was, if your small supplier doesn't get paid in 30 days, don't you think that perhaps they themselves may have problems paying their suppliers and their employees? And the small business owner said to me: 'Yes, but we need that money because we want to grow our business'. So again, there's this concept that somehow or other, those conflicting interests for the money that is available in those situations, that it's quite okay to simply use the money that you owe to a small supplier to grow your own business. And the question, we really need to be asking those questions and having those discussions are, is that a fair way to grow your own business off the back of another small business that is struggling to survive?
Jon Watkins
Yeah, it doesn't sound like Alan, you FSB must be hearing those same sorts of pressures, day to day pressures on small business owners, I think,
Alan Soady
Yes, absolutely. And of course, it means the flip side of what this is saying is that it means that the business that's not being paid in itself can't invest and can't grow and might put hiring plans on hold, because they've not got the money coming in, that they were expecting for goods or services that they've already provided in good faith. There's also then the impact of how small businesses who are being kept waiting a long time for payment have to try and overcome that if they are able to overcome it. And in some cases, you get people having to go for finance options, including even going for loans. And I was looking at some of our most recent statistics; we do every quarter a kind of temperature-take survey at FSB, and call it our small business index. And one stat that jumped out there to me from the latest one that we've done, is that of those who had secured finance recently, 21% was for equipment upgrades. 19%, or about a fifth, for expansion, only 4% for recruitment, 42% for cashflow, and clearly late payment is an absolutely driver of that huge driver of why people are turning to having to take out loans to cover where they've been kept waiting, in some cases, months for the payments that they should be getting much, much sooner.
Jon Watkins
That's a huge tangible impact, isn't it? Terry, your organisation Good Business Pays is running a new campaign to change this trend. Can you tell us a bit about what that is and how it works?
Terry Corby
Yes, thank you. And I'll tell you who Good Business Pays are. We set up a year ago to bring the human story of slow and late payments to life, we talk about 400,000 small businesses, which is a huge number, of course. But what lies behind that, assuming that every small business is at least one person, is 400,000 families. And and probably a lot more than 400,000 families if you employ a couple of people or what have you. So that the risk is not just to the 400,000 people, but their families that are around them, too. So we formed Good Business Pays a year or so ago, to bring an end to this culture that Liz talked about of slow and late payments being okay. We realised it was a hearts and minds type of movement, because we believe that how fast somebody pays - and when I talk somebody, I'm talking about a company - is about choice, it's not about not being able to it's purely about choice. We set out to do that in three ways. Firstly, to make the data interesting and relevant. So anybody can go to the Good Business Pays website, and look up the payment performance of any of the companies that are reporting. You just type in the company and it brings it up like little car dashboard. There are also sector charts in there. So you can see whichever sector you're in, food or beverage pharma, or whatever it is, the worst and the best and all of the companies that report. So it's important that people know what the payment performance is of all of these companies. So we make data interesting. The second thing is that we run what we call our heroes and villains campaign. So there are some companies that are really, really good, I should say that they pay in a day, they pay in two days. And we make heroes and heroines of those companies by giving them awards and shouting out from the rooftops. And they should be because we're talking about recognising good behaviour. And then we recognise bad behaviour too with our villains campaign. And it works. We call out those companies that are taking 100, 120, 130 days or so to pay invoices, paying them about 70-80% later than agreed terms. And it works the three worst companies from last year that we called out six months later had almost halved the time they took to pay their suppliers. And what that means is that 1000s of suppliers benefited from that change. So the heroes and villains campaign we've been running for a year, and it's doing very, very well. And then thirdly, we represent the interests of small business to government to the media around slow payment. Now, the campaign that you're referencing, goes back to a conversation that Liz and I were having a few months ago, we were talking about the fact that there are many different aspects to this cash flow issue. Some people come at it from an ESG perspective, others from a tech or a FinTech perspective. But, Liz, and I were sort of thinking, wouldn't it be great if we all at least use the same words, or we gathered around the same image or campaign at the top level to get cut through because many people, including the FSB have been working very hard for many years to try and solve this problem and have done great things. But we're still talking about the same problem after many years. So how do we cut through, so 16 of the biggest business organisations held by the FSB and others got together and said, Let's run a competition to come up with a campaign we can all gather behind. We got 350 entries from freelance creatives, we had a long list of 44, we narrowed it down to three, we gave cash prizes for the top three, we paid those people the day after the competition, so they didn't have to wait long for their prize. And the winning entry was something called a Wait Off campaign. And that wait is a sort of play on words of losing a bit of weight. But in this case, the weight is the wait that a small business has to wait for, for getting paid. 16 business organisations got behind it last week and launched it together. So hopefully people will have started to see images and words being shared around the country that show the human cost and the human opportunity of being paid. So when people are being paid late or waiting a long time to get paid. You can see the stress on their face. You can see that that's a weight off their shoulders, when they're paid fast. They can borrow money, they can pay their staff and they can get innovation going, which they can't do if they're not being paid. So it's called the Wait Off campaign. And it's everybody's campaign is not just ours. So we'd encourage people to get involved.
Jon Watkins
Brilliant. Thank you. And I understand that your work isn't stopping there. And you're actually announcing a new element to the campaign today.
Terry Corby
I am yes. And it's not an element of the campaign that we had planned at all. It's something that has come up from small businesses back to us as a result of the campaign existing. So we started to run the campaign. And we started to get a whole number of email requests from small businesses, saying, How can we get involved? Have you got any graphics or logos or supporting statements that we can put on the bottom of our invoices, because the example that Liz gave earlier of a small company, paying another small company, we have small companies coming to us and saying, We want to show that we pay our small suppliers fast. So can we use that too on the bottom of our invoices? And it was a wonderful request to get because we didn't know it would happen. It's come from the small businesses, and it really helps me in our work to say to big business: 'Look, small businesses are showing us the way, they're supporting each other. If they can pay fast, why can't you?' So yes, people can, can get involved. The way to get involved if you're a small business, and you want to have those resources sent to you, is you just need to send a text: pay don't delay no dashes or anything like that, just pay don't delay to 60095, and we will send you the resource pack. And you can put that on your invoices or on your email headers and footers and support the campaign and show your suppliers and customers what a good payer you are too.
Jon Watkins
Brilliant. And we've heard some varied numbers thrown around in terms of how quickly or indeed slowly, some some firms are paying their suppliers and so on. Alan, what's the sort of FSB guidance on benchmarks around, you know, time firms should be taken to pay invoices. You know, if I'm a small business owner, what should my expectations be, and what should I be pushing for in terms of payment terms with with firms that I'm supplying.
Alan Soady
Well Jon, you should not have to wait any longer than 30 days, 30 days should be the absolute maximum that you are kept waiting. And you know, where you have to take a different example, you have a benchmark nowadays of a minimum amount that employers should pay through the living wage. There should also be a benchmark of 30 days for the maximum amount of time, a small business can be kept waiting for payment for goods provided for services provided for jobs done. And through FSB's lobbying, we've already got that 30 days hardwired into the Prompt Payment Code. We've got that hardwired into the Good Business Charter, we've also got government to agree this, companies that win contracts with the public sector should pay this or risk being excluded from future tenders. With that, however, we've still to see the government demonstrate the teeth of that and actually see a big supplier to government that doesn't adhere to that 30 Day maximum, being excluded from future contracts; literally being blacklisted for applying until they improve their payment practices. And we're talking to the government, including to number 10 all the time about this to try and get that moving forward, so that the government can play its part in not handing taxpayers money to some of the poorest payers, which we in principle is agreed. But I think we need to see that coming through in terms of actual concrete examples of where it is put into practice. We are also urging the Prime Minister and his officials that we work with to make sure they meet that benchmark with anyone they work with that they pay their suppliers within 30 days. And also this should be at audit committee level in big businesses; audit committee should be made responsible for the treatment of supply chains. And that should again be wired in that the maximum payment terms should be 30 days.
Jon Watkins
Liz, do you do have a view on that sort of expectation for small businesses on how quickly they should be met? And a second part to that question, you know, while the onus is, quite rightly, on bigger firms to get their houses in order here are there also some things that small businesses can do to improve their chances of getting paid on time or chasing down late payments?
Liz Barclay
I would love to see small businesses getting paid within 30 days, I'd love to see more people signed up to the Prompt Payment Code. And the code is, the signatories to the code commit to paying at least 95% of the invoices from their small suppliers within 30 days. However, what small businesses quite often tell us is it's the certainty that they really need. And if you tell them, You're going to pay them within 30 days, then they need to know that that money is going to reach the bank account within 30 days. If you tell them you're going to pay them in 45 days, similarly, they need the certainty the money will be in the bank. Because people are trying to manage their cash flow when they need to know they need to have that certainty as to when the money is going to come in. So while I would ideally like to see the 30 days minimum, I want real certainty so that people don't find excuses for delaying and further delaying. And what I really would like also small businesses to understand is that if they are offered a piece of work, and offered payment terms, and I have seen payment terms of 120 days, 150 days, that they push back and say, No, I can't function as a small business, I cannot carry on supplying you, if you're going to make me wait four or five, six months in order to get paid, you wouldn't do that as a responsible employer, to your staff. So why are you treating me less fairly? And I think big businesses have to understand that those small suppliers are vital. They're the talent that's driving the success of bigger businesses. And if you lose those really talented suppliers, you've got to go out there and find new ones. And that takes resources, time, money. And you've also got start rebuilding relationships, you need to nurture and work in partnership with your small suppliers. And we have been told over the past couple of weeks of several small suppliers that have simply said: 'No, we are not going to work with you, because you were offering us extended payment terms that we really can't accept.' And then the business, the customer, coming back to them and saying: 'I didn't realise we will offer you better payment terms'. So we really need to be pushing at that door that says, you know, payment terms have got to be fair, and we the small businesses will negotiate with you. But if you don't come up with a fair term, then we'll walk away.
Jon Watkins
Yeah. And that's compelling. And I guess, in this current climate, where supply chains are under pressure, and have been for some time, that pushes a little bit of power back towards suppliers as well. So that's good. Alan, I just want to touch as well on the sort of role of technology here, I'm mean, in a world where we're increasingly moving towards automated processes and systems, is that something that can help?
Alan Soady
I mean, there's certainly potential for technology to help here through through new software developments and so on. Actually, the government's committed some cash to funding the tech development. But that's only potentially effective where there is still the intention to pay promptly. And what technology doesn't get through is where there is more a cultural and deliberate decision to delay payment. Or perhaps it's a it's a one off delay. And, and therefore, alongside technology, there are also more traditional methods of trying to get paid and trying to chase it up. For FSB members, they can access a service called FSB Debt Recovery, which can help them, has helped in its first year it helps 10,000 members to actually recover money that they were owed. And there are guides there on the process that you can go to, there are templates on there. For pre-action letters that can be sent, the there is a late payment calculator on there to help you calculate the interest that you should charge on a on a late payment. And then if those early steps don't work, then there is access to a discounted rate on fixed price legal support. And often actually, if members have to go to that first step of actual legal help from a legal professional, sometimes the very first thing is that thing that does the trick where, you know, there's a sort of fixed discounted price, £30 plus VAT for a legal letter. And often that's the thing that then pushes the person to realise that you do business with this, and you are not going to let up and they pay. And there's an example of one of our members who did exactly that, and for that £30 letter then got £2500 back pretty quickly, but they were owed, having failed to chase that successfully before that. So there are a number of ways of chasing this. Yes, technology can play a part that can be cultural change, but also, if you're an FSB member there is that that way of supporting you in chasing payments that you wrote as well.
Jon Watkins
That's brilliant and rounds off a really interesting conversation around the issue of late payments and for small businesses in particular and the pressures that is putting on them. Thank you, Terry, Liz and Alan, for that brilliant walkthrough. And thank you also to our audience for listening. While I have your attention, I would just like to remind you that you can subscribe to the First Voice Podcast to receive regular updates and guidance on the big issues affecting small businesses and do please also remember that you can find a whole host of additional webinars, podcasts and other content on the First Voice website at firstvoice.fsb.org.uk Many thanks.