New research reveals that small businesses are suffering at the hands of larger companies.  Late payments are said to be affecting 88% of SMEs, with 72% of those surveyed reporting delayed settlements as posing a serious threat to the sustainable life of their business.

Finance director of the Forum of Private Business (FPB), Nick Palin, said: “The research shows worrying trends emerging. Supplier abuse appears to be widespread, and many smaller firms are in a catch-22 situation, fearing that, if they take action, the larger companies will simply refuse to deal with them again.”

Retailers are thought to be the most affected by increasing running costs and late payments, with over half of respondents documenting an increase in lengthy payment terms during 2008, and a third declaring amounts owed range between £1,001 and £5,000.  As consumers’ dispensable income decreases month on month, retailers are having to absorb increasing overheads such as energy costs and commodity prices.  According to Capital Economics, the downturn in house prices, rising unemployment, a decline in manufacturing etc. is having a full and comprehensive impact on all businesses.  However, SMEs have fewer provisions in place to survive the current climate.

As such, SMEs are advised to take advantage of outsourcing.  Due to limited resources, SMEs are less able to focus on core competencies.  For example, creating a professional website requires the expert input for real impact and valuable search engine rankings.  Though the initial outlay for such services may not be a SMEs priority, the potential ROI can be substantial.

In the meantime, SMEs are reminded of their entitlement to use the Late Payment of Commercial Debts Act 1998.  Enforcing this can put an end to cashflow problems caused by late payments.  However, small businesses remain reluctant to use it due to a legitimate fear of losing contracts.  Their statutory right to interest on late payments is not a persuasive feature to small businesses pursuing claims.  Research conducted by Experian has revealed that larger firms delay payments to small businesses on average, by 20 days. This exposes SMEs to real cashflow dangers, and has a domino effect on businesses across the country.  It was also reported that micro-businesses are having to bridge the late-payment gap by using expensive credit cards or overdraft facilities.

John Wright, chairman of the Federation of Small Businesses (FSB) said: “At a time when small businesses are finding it difficult to deal with a slowing economy and rising costs, it is shocking that large companies think it is acceptable to use them as an unofficial source of credit.”

However, research from the Small Enterprise Research Trust (SERT) revealed that there has been some growth in sales, with 48% of businesses reporting sales increases.  It is thought that some of this growth may be related to businesses using online campaigns to increase company visibility, and links from branded sites.

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