Issue date: 05 April 2012
UWE Bristol's Dr Salima Paul, in collaboration with Professor Rebecca Boden (University of Roehampton), has published a report, 'Getting Paid: lessons for and from SMEs', commissioned and funded by the Association of Chartered Certified Accountants (ACCA). This was the first major qualitative study of the problems faced by UK businesses being paid late. Dr Paul interviewed 40 UK firms and their larger suppliers to gain a better understanding of the factors that influence payment arrangements and relationships between companies.
In the current economic climate, late and non payment by customers for goods and services heighten the financial stress already experienced by small and medium-sized enterprises. Last year according to a BBC news item, BACS revealed that UK SMEs were owed £33.6 billion by November 20111.
Dr Paul explains, “We coined the term 'Cinderella subject'2 to describe trade credit, as it's an issue that has not received the attention it really deserves given its economic significance. Most studies focus on largely quantitative data which does not add to our understanding of the operation of trade credit as a business practice or set of relationships. Through our interviews with credit managers and controllers in the UK across a variety of sectors, we were able to identify the factors that influence the late payment to SMEs by larger firms and consider how this problem might be managed.”
The researchers found the relative power of major customers over suppliers is only one of many reasons for late payment and that business size did not necessarily dictate how much such power operated. Other factors contributing to late payment included:
- Poor organisation on either the customers' or the suppliers' side
- Internal tensions between the credit management and sales functions
- Major differences in commercial bargaining power between suppliers and customers
- Non-payment or late-payment cultures in particular sectors
- Lack of 'soft' credit skills, including timid credit management styles and a failure to establish rapport with customers in order to understand their businesses.
- Cash-flow problems, often a result of poor financial management
The research reveals that statutory regulation allowing companies to charge interest on late payers is still largely ineffective in resolving late payment issues.
Dr Paul concludes “The best way of addressing these failures is by exploring the ways in which both customers and suppliers can be encouraged, educated, trained, incentivised and organised into maintaining better relationships that mitigate the risk of late payment. This approach needs to be evidence-based and so offer a robust framework to guide all firms in reconfiguring these relationships; in addition it needs to be developed in conjunction with credit management training and supported by government and professional associations.”
In February, ACCA joined the Getting Paid On Time initiative launched by the department for Business, Innovation and Skills (BIS). Together with the Institute of Credit Management (ICM), the Forum of Private Business and Experian, they published a summary of Dr Paul and Professor Boden's research as a brief guide to business owners and managers, entitled Get Paid.
Business and Enterprise Minister Mark Prisk said, “It is hugely important that all businesses, particularly small firms, establish clear payment terms to ensure they get paid on time and successfully manage their cash flow. There is practical information available for businesses on getting paid that we are promoting to small firms through our Finance Fitness campaign, and this new guide published by the ACCA contains clear, helpful advice. I want small businesses to use this information and set up appropriate payment terms."
For a full copy of the report see: Getting Paid: Lessons for and from SMEs
1 According to BBC news website (2011)
2 Paul and Boden 2008