Conflicting Payment Terms 'Hindering Small Business'

A New Study From Bibby Financial Services Shows Conflicting Payment Practices Are Affecting SMEs

31.01.2014

Fergal Dowling, Partner | +44 (0)121 214 5476

Conflicting payment terms employed by businesses globally are harming SMEs, a new survey from Bibby Financial Services (BFS) has shown.

Experts from BFS asked 1,000 small businesses across the globe about their views on payment systems and found it is a major issue for a number of firms.

One of the biggest problems found was the expediency with which money was expected. In Germany, 79 per cent of those surveyed required customers to pay their invoices immediately, with only a tiny number offering credit agreements.

By contrast, only 24 per cent of UK SMEs needed instant payment, with a much larger number offering long-term credit.

While this might seem like a relatively minor issue, SMEs claimed it massively harmed their ability to explore new markets, with around one in five companies stating alternative financing arrangements are an obstacle in this regard.

Stuart Dunbar, company director of Oak Exports, which distributes non-perishable foods to a number of growing markets - partially funded by BFS - said he found that customers outside of the EU tended to pay more quickly than those inside the bloc.

The company director added in some countries it can be normal for payments to be sent more than 100 days after the transaction was agreed, citing a "laissez faire attitude" as the main reason behind this.

Simon Featherstone, global chief executive of BFS, said: "Businesses should take the time to understand payment practices in other countries and move to ensure their payment terms are aligned with local practice. Policy makers should also examine what could be done to harmonise conflicting regimes,"

"Taking action to remove these barriers would deliver real benefits. It would boost SME activity, create jobs and kick-start economic growth."

To solve this issue, BFS wants SMEs from across the world to come together and establish a global standard by which all payment systems can be measured against - something Mr Featherstone believes will make it easier for small firms to export.

Expert Opinion
Much research in recent weeks has highlighted that there are many opportunities emerging for small businesses which are well positioned to take advantage of opportunities in other countries, either through exporting or expanding their operations into other countries.

"However, a study of this nature demonstrates how important it is for smaller firms to be flexible in their approach to business, particularly when it comes to adapting to payment approaches and other issues which may differ from practices in the UK.

"Being flexible in this regard could create many opportunities for start-ups and they should bear this mind, as well as ensuring they have the right support network – including legal advice – on hand to help them develop their offerings."
Fergal Dowling, Partner