They are not a bank – so stop treating them as if they are!
There’s been a lot of talk recently about the challenges SMEs (small and medium enterprises) face regarding cash flow. The Australian Small Business and Family Enterprise Ombudsman released preliminary findings from an enquiry earlier this year that confirms this is a serious problem for small businesses.
If you are a small business person you already know cash flow is an issue. You are likely to be one of the almost 62% of small businesses that are waiting for payment of outstanding invoices. When a small business sends an invoice to their customer with payment terms of between 14 and 30 days, they do so expecting to be paid on time.
When the customer is a big business they can take up to 45, 60, 90 and in extreme cases can take up to 120 days to pay that invoice.
This puts enormous and unfair stress on small businesses. It’s time for big business to step up and do the right thing.
There is talk of creating legislation and a voluntary payments code. Both the US and the UK have introduced codes for companies to pledge payment to small businesses within 15 and 30 days respectively. It’s time for Australian big businesses to do the same thing.
Telstra is the first to say that they will pledge to pay their bills to small businesses within 30 days. I applaud Telstra CEO Andrew Penn for his decision and commitment to small business in Australia. Who will step up next?
There are lots of ways that small business can effectively manage their business cash flow. In my experience in the past 15 years working in and around SMEs, most are extremely diligent in managing cash flow.
The impact of not having invoices paid on time has several critical impacts on a small business:
- It’s hard to focus on what they do best when they “can’t sleep at night” because they are worried about cash flow;
- Time is taken out of their day chasing payments, that could be so much better spent doing great work with and for their clients;
- They could actually run out of cash and the business could fold;
- They can potentially lose great team members if they are unable to guarantee payment of wages; smart people know when a business is under cash pressure. It’s a brave person who stays working in a small business where there are constant cash flow issues;
- They can lose great suppliers – when cash flow is under pressure it affects the business’ ability to pay their own bills and suppliers may potentially withdraw their provisions.
It’s just such an unhealthy vicious circle.
Over the years I have worked with and assisted businesses with debt collection. “You are not a bank” I remind them. When I was working with a wine company I used to remind them: “You provide wine, you are not a bank” and so it goes.
Big business, you have access to lines of credit from banks – real banks. Small business is not your free overdraft nor your free line of credit and it is time to treat small business with respect and pay their invoices on time.
In many cases, the people working in the accounts departments of these big businesses would happily pay the small business on time if their processes enabled it.
While I know there is little human contact with the actual physical processing of the invoices because much of it is computerized and outsourced – hiding behind processes and systems is just no excuse.
Those same systems that are set to 45, 60 and 90 days can just as easily be set to 10, 15 or 20 days. I’ve worked in large corporations and I know this is true. The business just needs to be willing and the decision makers just need to make the call, like the CEO of Telstra, Andrew Penn.
SMEs too need to ensure their invoices are accurate and have all the right details to ensure smooth seamless processing of the invoice. Nothing will hold up payment like a detail being omitted or if it is incorrect.
Just a few weeks ago I was part of a discussion where a key panel member said “…. big business is falling over themselves to find ways to partner with small businesses, to help them…” Because there are 2.1 million small businesses in Australia that employ 4 million people and generate a fifth of our national GDP.
This was about creating loyalty in the relationship between big business and small businesses in Australia.
I have a suggestion for big business, pay your bills on time and encourage others to do the same.
The mood is ripe for change. This is an opportunity for big business to decide to support small and medium enterprises and set the example for others to follow.
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