Mars; miles away from planet earth when it comes to payment terms!

The Government’s feeble efforts to speed up supplier payments to SME’s seems to have been skittled again as another one of the big boys sets its own rules.

There was a time, during the darkest moments of the credit crunch, when the Government appeared to recognise the unfair ‘David & Goliath’ relationship between some SME suppliers and their behemoth customers who seemed to be playing a different game when it came to payment terms.

Muted celebrations

The issue was considered serious enough for the Government to do what it always does in these situations; blow hundreds of thousands of pounds for a bunch of consultants to run it up the flag pole.

The ensuing debate initially showed all the signs of a full blooded salute with great expectations for the “Prompt Payment Code” and mutterings of a “name & shame” initiative. In reality what we have ended up with is more of a limp-wristed wave as the black list idea has been dropped in favour of introducing new measures to “increase transparency”.

A nutty topic

The interesting point about the failings of the Prompt Payment Code is the very small number of FTSE 100 companies willing to sign up to it. Perhaps more interesting is that now the scheme has had even more of its teeth extracted, a giant among companies feels comfortable squeezing its suppliers even further.

A recent report in the business pages of The Times has highlighted investigations by the Forum of Private Business (FPB) into claims that Mars UK has doubled its payment terms to suppliers from 60 days to 120 days. On top of that it is alleged to have introduced a supply chain finance scheme whereby SME’s can obtain payment within ten days as long as they take a hit on the full amount of their invoice.

Cheeky chappies

It is a particularly difficult conundrum for SME’s when the choice is of the Hobson’s variety. On the one hand do you take an instant hit on your bottom line by enrolling in the supplier finance scheme or struggle to fund a four month cashflow gap? To some business owners it’s probably even more galling to have to rely on a line of finance partly arranged by the very customer who refuses to pay in a reasonable timeframe.

Control your own bounty

Of course the invoice finance industry has been funding this type of cashflow gap for many years now and currently provides some £18 billion to businesses that sell to other businesses on credit. Whether you want your whole turnover included or prefer a facility tailored to specific customers you can get in first and organise your own form of supply chain finance long before the bigger boys in the playground start throwing their weight around.

It always makes sense to pre-empt cashflow blips so don’t wait until the gun is pointed at your head before finding a way to relieve the stress. The comfort of knowing you can cover extended payment terms (welcome or not) with a flexible funding solutionshould certainly help you work, rest and play.

by Steve Leeves

23 May 2014