It seems that all recent campaigns and attempts to get big businesses
to pay their bills on time have failed and an outrageous figure of over
£30 billion is owed to small businesses, meaning that they are
providing funding to bigger businesses - that is just plain wrong!
Culture change
The Business Secretary, Vince Cable, seems to think that the solution
is to impose fines on businesses that fail to pay their suppliers on
time, although that does rather seem like closing the stable door after
the horse has bolted and provides little help to the cash flow of the
small business with the outstanding and unpaid debt.
The problem seems to be that business culture has developed into one
of accepting that 30 and 60 day credit terms are normal; and that has to
change. We have moved far away from the days when it was commonplace
for a sign to be hanging behind a shop counter with the words “please do
not ask for credit as refusal often offends”. The time has come for
small businesses to push back; they cannot afford to bank roll the cash
flow of big businesses nor can they afford the overhead of a credit
control function. And why should they?
Fear factor
There seems to be a fear that if credit is not offered then a sale
will not be made to a customer, but is that fear really valid? Surely a
customer worth having is one that buys a product or service from you and
pays for it to the agreed payment terms. If they don’t pay on time then
is that business you should really be chasing?
Thinking outside the box
I run a business in a very traditional industry – accountancy. The
norm is very much that the work is done and the invoice raised with the
client paying some time in the future. The result is what is termed
“lock up”; a large 'debtors and work in progress' balance. When I
started my business six years ago lock up was something that I was
determined to eliminate in my business model and I did exactly that with
clients paying monthly fees. The result is that as we prepare and
submit their annual accounts and tax returns the fees have already been
paid. They're happy as the accountancy cost is spread throughout the
year and we’re happy as we’ve been paid for the work done and do not
need to worry about debtors and bad debts. In fact in the six years that
we’ve been operating we’ve had only a handful of bad debtors out of
nearly 2,000 clients; not a bad result given the recessional times we’ve
just experienced.
Accountancy is an industry that changes very slowly but if the
elimination of credit can happen here then why can’t it happen in every
industry?
Let's go Escrow
I recently came across an innovative solution to small business
payment processing offered by People Per Hour (PPH) who “have a
community of talent available to work, online, at the click of a
button”. Simply put the web site provides a resource for buyer to meet
sellers and transact. Once a sale is agreed a proposal is created and,
if the buyer accepts it, payment is made with the amount being put into
Escrow meaning that the money is held by a third-party, PPH in this
case, on behalf of transacting parties. The funds are released to the
seller once the sale has been completed, an invoice raised and the buyer
agreeing that the work has been done. Funds can also be released if an
invoice is overdue or as an outcome of a dispute resolution.
So all round it seems a rather good solution for a small businesses
to ensure that they will be paid for the work that they’ve done as well
as providing the buyer with an element of protection for shoddy
workmanship or other disputes.
Vince Cable’s Business Bank
It seems obvious to me that the solution to businesses not paying
bills on time is for an easy and free to use system of Escrow to be
available to ALL small businesses in this country via Vince Cable’s new
Business Bank. Rather than spend his time proposing a system of fines
I’d like a call to action for him and the Government to really support
small businesses in this country and make it compulsory for all sales to
be paid on or before delivery or for the sale to be transacted via the
Escrow system ensuring protection for both the buyer and the seller.
What objections could possibility be raised to such a common sense and practical solution?
Follow me on Twitter @GoldenWords_UK
0 Comments: