EOW Reflections: We need to pay fair

While it’s been a relatively quiet week in terms of meetings and decision making because so many people are on holiday including MPs and Ministers, it’s been a busy one in terms of planning. The autumn is already jam packed with conferences, panel sessions, seminars and webinars. On the one hand it feels like pre-pandemic Business as Usual, and on the other it feels as if there’s momentum for change.

Next week MPs and Ministers will be back at their desks. The good news is that small businesses are a priority and addressing late payments is at the top of the list for the Department of Business and Trade, so change is in the air, but what will it really mean.

I’ve talked to so many of you in the past weeks and months about what late payments means in your part of the business ecosystem. If we start with the smallest, freelancers, the problem may not be so much that payments are late (as in overdue beyond the agreed due date) but that they don’t turn up at all. Freelancers in the creative sectors for example will often be given work on the basis that they will be paid for that work when the customer gets paid themselves. That could leave a freelancer waiting for months for money owed and if the production of the work entails paying other people for materials or labour the freelancers is out of pocket in advance. Sometimes, and I’m speaking from personal experience here, freelancers don’t get paid at all because the work is contracted on a ‘pay when used’ basis, such as pay when published. If it’s never published it’s never paid for. Then there’s the expectation in the freelance world that people will be willing to work for free to get experience or to demonstrate capability. Being a freelancer worker can be a stressful and hungry way to make a living.

Sole traders are on their own. Along with the rest of the micro business owners they’re pitted against the greater power of the bigger customer. Even if the bigger customer is another small business there’s little guarantee that payments won’t be overdue. Small business owners do understand the needs of other small business owners but if you’re waiting to be paid by someone above you in the chain, sometimes there are hard decisions to be made about who to pay and who to delay. It can come down to feeding your family ahead of paying your small suppliers.

And so it goes on up the chain. Few people can pay the supplier below them on time if the person at the top of the chain, doesn’t pay quickly.

On top of that are the contracts that stipulate long payment terms. If number one customer at the top, makes a contract with number two in the chain, to pay them in 120 days, number 2 probably won’t pay number 3 until at least 127 days and possibly much longer, and so the long time to be paid problem escalates as it cascades down the supply chain.

We won’t fix the problem of late (as in overdue) payments unless we can fix the issue of long payment terms in contracts. As long as smaller suppliers feel they have no choice but to accept extended payment terms or lose the work, smaller suppliers will be waiting to get paid and paying late. We need better contracts that include fairer payment terms. We’ve got to get the message out to businesses of all sizes as well as to ministers and policy makers that it’s to the benefit of everyone. We need that wind of change.