BusinessCorporate FinanceRecurring cash flow nightmare

Recurring cash flow nightmare

If you are the finance director or the accountant in a small company there’s nothing more likely to keep you awake at night than your cash flow

It’s a nightmare because as all small businessmen will tell you, cash goes
out the door at a much faster rate than the one at which it comes in.

That’s why the story on our front page last week about the late payment of
bills by some of the biggest companies in the country was so important. Simply
put, nothing threatens a business like the inability to have invoices paid.
Tesco, we revealed in research conducted with credit specialist Graydon, only
paid 67% of invoices within terms last year, compared to 87% the year before
that.

Now the competition commission has asked for the research as part of their
investigation of the groceries market. It’s not yet clear why, but it seems
there may be concern about the way late payment affects the market.

It remains for the commission to demonstrate the link.

But the interest underlines the concern that persists about late payments and
its implications for small and medium sized businesses, the engine room of the
UK economy.

Wholesale late payment can be its own form of cashflow control. If practiced
deliberately it would form a very cynical method of exploiting the relative
weakness of suppliers who find themselves dependent on big customers for their
trade. The NFU told us there was an imbalance of power in the supply chain, such
that small suppliers were treated ‘appallingly’. That argument is
incontrovertible.

What big business must realise is that such behaviour is counter productive
because it threatens the existence of the suppliers who provide the means by
which big companies do their business. And that cannot be a good thing.

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