Member Article

Happiness is a positive cash flow

Fred Adler, the Forbes director and venture capitalist, once famously said that “happiness is a positive cash flow.” Hardly any of the UK’s five million small business owners would disagree with him.

The importance of cash as the lifeblood of a business is one of the most salient lessons learnt by any entrepreneur. An inability to manage cash flow effectively remains one of the primary reasons for small business failure and its importance is only intensified at a time when getting clients to pay their invoices on time is becoming harder and harder. Even the most conscientious business owner, with cash flow projections coming from all sides, can be undone by serious late payment by multiple clients.

The Government’s introduction of a Prompt Payment Code was intended to drive change in payment culture. It was pitched as a way of encouraging and promoting best practice between organisations and their suppliers. However, in the last few weeks, Michael Fallon, the enterprise minister, has been forced to get heavy with larger companies by giving them a month to sign up to the code or risk being named and shamed. This came after The Daily Telegraph reported examples of companies delaying payments for 90 or 120 days despite the services or products already being provided.

But these are FTSE-listed companies and the vast majority of the UK’s five million SMEs do not deal with FTSE-listed companies. Perhaps more pertinent was research by the BACS Payment Schemes which shows that small businesses are waiting, on average, more than eight working weeks to be paid by larger corporates, have outstanding invoices totalling £30.2 billion and, on average, are waiting for £31,000 in overdue payments. The BACS survey showed small firms in the north of the country being owed an average of £39,000, which is almost double that of businesses in the south, where the average is £23,000. In some sectors, almost 60% of companies are waiting for overdue payments.

This is more than just a problem for SMEs. If the small business sector is really going to be the engine of growth for the UK economy, it cannot be expected to operate with one arm tied behind its back. SMEs cannot deliver growth when their own cash flow is constantly under threat and their businesses held to ransom. After all, we are only asking for fair payment for services provided. Imagine visiting your local supermarket, stocking up your trolley and then telling the check-out person that you’ll pay on 90 days!

It is time for the voluntary Prompt Payment Code to be given some muscle. At Ingenious Britain we believe that the collective voice of SMEs can help deliver stricter action being taken to ensure small businesses are paid on time. We would like to see a small business ombudsman established to which persistent late payers can be referred and fines potentially applied. To join the campaign and make your voice heard, you can sign an online petition here.

All small business want is certainty, that will stimulate growth and investment, and a level playing field – at the moment they have neither.

Howard Robinson is Head of Communications at Ingenious Britain, the small business campaign designed for and around small businesses, aiming to provide support, advice and a voice to businesses that deserve to be heard.

This was posted in Bdaily's Members' News section by Ingenious Britain .