Responsible Payers Drive Economic Growth

This article appears in our Q1 2023 issue of Finance Transformation Magazine. To download the issue, click here

Liz Barclay, Small Business Commissioner for the UK, explains why small businesses are the backbone of the economy and how the current Payment Culture undermines this critical contribution and as a result, undermines economic growth.

Small businesses are the backbone of the UK economy. How many times have you heard that and agreed?

Why then is it so hard to get small firms a seat at the table, a voice in the debate, treated with respect and paid fairly?

5.6 million small businesses from freelancers and sole traders to micro businesses and those with up to 50 employees are hugely significant.

They may not all want to grow into the next industrial or technological giant but together they are responsible for 50% of employment, 50% of growth and 75% of innovation.

Given the right support they will level up, underpin the drive to Net Zero and lead the charge out of recession. Yet there seems to be a perception that small equals insignificant.

Since I took on the role of UK's Small Business Commissioner 18 months ago, I've strived to push the concerns of small businesses up everyone's agenda.

My core remit is to make sure small suppliers get paid quicker by their bigger customers and to help them resolve disputes if those arise. I've concluded that fair payment practices are fundamental, not just for the small firms but to the UK economy as a whole.

If bigger customers hold onto their cash to safeguard their own businesses, and make the small suppliers wait for invoices to be paid, beyond the due date, how is that fair? That amounts to using your small supplier as a bank for your own convenience.

The inevitable outcome of many overdue payments is that the small business can't pay its own suppliers, bills and wages and is forced to cease trading. There are financial products available to tide firms over and fill the cashflow gap, but those options are not always available or affordable for the smallest businesses.

As a result business and personal credit cards and overdrafts are maxed out, family and friends are tapped up to the limit and the only person who will lend is the one down the pub with alternative methods of debt collection. Often overdue payments are down to poor processes rather than intention to pay late so those processes need to be updated as a priority to avoid these nightmare scenarios.

Overdue payments aren't the only problem. Some bigger customers flex their muscles at the point of procurement and offer poor payment terms of 60/90/120 days or even longer, on a take it or leave it basis.

Many small suppliers won't negotiate for fear of losing the work. Many take on work without knowing when they'll be paid. Many contracts don't mention payment terms. Many aren't written so if there is a dispute there's no proof as to what was and wasn't agreed. All this amounts to poor payment practices.

Ultimately, whether poor payment culture or poor processes lead to payments being overdue, everyone is harmed. Customers risk losing good suppliers and it costs time and money to find and recruit new ones.

The small supplier goes to the wall taking their wealth of talent and expertise with them and their families, employees, families of employees, local communities and wider society all suffer.

The reputation of poor payers eventually catches up with them and people don't want to trade with them, work for them, invest in them. Chasing payments costs small firms inordinate amounts of time and money and ultimately many payments are simply written off.

This all adds up to a loss of time and money that could go into planning and investment. That's one glaring reason why the UK has a productivity problem. Is this really what we want for our economy?

Now more than ever we need to get payments into bank accounts as quickly as possible so small firms have the certainty to invest, innovate and grow.

Good, quick, fair payments are key to growth, productivity and jobs. The other issues that small firms face such as access to funding, competing for skills, the cost of doing business, can be alleviated by knowing when and how quickly payments will be made.

Waiting causes sleepless nights and anxiety. We're hearing increasingly from small business owners struggling with their mental health and giving up once profitable businesses because they can no longer cope. We can't afford to lose those skills and that talent from the workforce.

We need business leaders who put payment practices at the top of the company agenda. Chairs and CEOs need to ask 'how well do we treat our small suppliers'. Payment practices aren't just an operational issue.

They are about being ethical, building reputation, embedding a strategy of doing the right thing. Payment practices are a governance (G in ESG) issue, a social (S in ESG) issue given the wider social impact and the role in levelling up.

The E in ESG applies too. We won't reach Net Zero unless small firms are in on the act. They won't be if they don't get paid.

For the sake of ESG, the UK economy, wider society, local community, jobs, innovation and growth, let's get our small firms paid quicker. #PayDontDelay #EveryoneBenefits.

And there's the velocity of cash argument… a discussion for another edition.

About the author: Liz Barclay

Liz is Small Business Commissioner for the UK and a former freelance small business and personal finance journalist, writer and broadcaster and small business owner. She is an experienced Board Chair, NED and HR and Remco Chair across private and third sector organisations and is an Internal and external Communications Consultant and Trainer, Conference speaker and Facilitator.