Small firms raise fears over cashflow squeeze

Small firms are increasingly fearful of being placed under a cashflow squeeze by some of their larger customers amid claims the giants are adding new contract terms to delay paying their bills, an EDP investigation has found.

Many smaller firms are facing increasing pressures at the hands of their larger business customers following the imposition of changes from 30 days to 60-day payments. At the more extreme end some large businesses have said they would not pay for 90 days, and in one case a company wanted to put a 120-day payment term in a contract.

The EDP has been contacted by a number of smaller Norfolk and Suffolk businesses giving details of household names that have told suppliers that they are extending their terms of payment. Many are fearful of publicly speaking out about the issue, or negotiating, because they do not want to lose vital contracts to their business.

One firm, Norfolk-based services company May Gurney, last month advised some suppliers that it would be amending its payment terms to 60 days for all invoices received after September 1. Procurement manager Paul Gurney told the suppliers that as a growing business it had to manage its cashflow 'sensibly' and was amending its payment terms to what it believed was industry standard.

In a statement May Gurney said the changes only applied to companies which supply it with material such as aggregates which are used in highways maintenance and it was mainly larger organisations which were affected by the changes.

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It added: 'Any well-run business pays particular attention to its cashflow management and by making this change May Gurney will be matching the terms offered by its competitors.'

One Norwich businesswoman, who did not want to be named, said big companies were imposing rigorous contracts with much longer payment terms. She said: 'It seems to be a case of 'these are the terms, take it or leave it',' she said. 'In the main we would expect 30 days. We could not leave paying our suppliers for three months. People could go out of business in that time.'

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Martin Lake, chairman of Mid Norfolk Federation of Small Businesses, said: 'Money is the lifeblood of every business, as long as money flows then a business has every chance of being able to meet the expectations of its financiers, suppliers, customers and staff. It is when the flow of money slows or stops that things can get quickly out of hand. Putting this scenario into an everyday context, would it seem fair if your employer emailed you to say 'we will pay you, but not for another 30 days', would you find it easy to manage between now and then?'

But he feared the changes could also see firms facing extra bank charges.

'I think the banks would find it slightly more difficult than usual to refuse to support a small business over this period, as it is fairly certain that the money will come in, so the risk should be perceived as low. However, the banks will of course want to charge for the privilege, which means yet another nibble off the profit margin.'

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