Friday, 14 August 2009

Coffee But No Danish, Please

We all need our top customers and big companies have a great advantage as they are safer clients to have. But sometimes big customers can be your worst nightmare.

We have all had our troubles during the last year and collecting cash always gets that little tougher in harder business times. Everyone wants to hang on to their cash as long as possible but you have to be reasonable about it as what you do to others can be done to you.

You may be disturbed to read that the Danish brewing giant, Carlsberg (yes the one with the natty adverts about 'probably the best lager...'), has unilaterally increased its standard payments terms to 95 days. To boot, that is 95 days from the end of the month of the date of the invoice which can be up to 120 days.

So if you are a small business and you supply Carlsberg some products or services, what do you do? Apparently you put up or get lost, according to the company's new terms and conditions. They have said that they may negotiate based on a commercial advantage in some cases but their basic premise is that these are their terms - you either want to be a supplier or not.

Now I dare say that their largest suppliers, which may be large companies in their own right, may have the ability to stare them down on this but if you are a small or medium sized business local to their brewery in Northampton, I am sure you will be presented with this appalling dilemma. Either agree to the terms or kiss goodbye your customer.

Imagine if you supply recruitment services to the company - no matter how good a job you have done, you do not get paid for up to 120 days after a candidate is chosen and starts. This will be on top of the time it has taken to actually research and find candidates which itself could be a matter of a few months - it could be as much as 6 months between job brief and payment.

Absurd as this may sound, this is potentially a landmark case as if this is allowed to be imposed on suppliers, it effectively gives carte blanche to other companies. Carlsberg is not alone, Diageo also extended its mandatory terms to 60 days earlier this year. If this is a trend in business, then small businesses could get squeezed to death as banks are never willing to fund businesses with a poor cashflow model as they are effectively just paying for salaries.

We could argue that selling drinks is a pretty fast-moving, cash generative business but there are considerable core costs within brewing which do tie up money. But still it is very hard to argue why a business like Carlsberg, doing pretty nicely in the midst of a recession, needs to strangle suppliers in such a draconian way. Just imagine if the Carlsberg customers started to mandate onerous terms.

That's the way of the world in business to business (B2B) suppliers. For most small and medium B2B suppliers there are few, if any, cash payers - everything is done on credit. For many of us, our own suppliers either do not give much credit, demand cash or credit card and the maximum we can hang onto our own cash is around 45 days and if we are very tricky about it, 60 days. Realistically, if we don't pay within 30 days then we are only asking to get treated more harshly in the future and particularly when we need things urgently or need to go over our limit for a large purchase to satisfy a large customer. In other words, small businesses do not get a great deal of choice, they are squeezed by both customers and suppliers and, frankly, they have little choice but to get on and lump it. Either that or they have to cut their nose off to spite their face by deliberately not trading with large companies.

All that sounds a terrible indictment of modern business, although if you go to Italy, this is pretty much the norm. The fact is, the brave new world that Gordon Brown painted for us seemed to include leaning on big companies and telling them to pay smaller ones faster rather than slower. In fact, he did say that Government would lead by example by settling bills faster. Right now, I am involved in a company whose end users are schools and I can attest that Government bodies in that area pay no faster than they did before. My sister's company which is involved in selling in to Education Authorities, amongst other organisations, can also testify that things have got no better, if not worse as there are far more quibbles, but certainly there is no new zest to pay early as promised.

Banks play their part by continuing to be frugal in terms of credit and ridiculous when it comes to overdrafts to support slow payments. Just recently, I had to pay a supplier and had not transferred the money into my current account in time. For a matter of an hour or so, I incurred a £3,000 overdraft above my agreed limit even though I had had several times that amount in my deposit account. I was charged at 4 percentage points above base and for a whole day. When I approached them last Summer for a short term facility they refused even though I had a large Capital Bond with them due to mature the very next month which covered the amount I needed by a factor of four. The facilities to small businesses are very poor and the whole Government Enterprise Loan Guarantee Scheme seems to have not helped at all from my dealings with other companies.

What Carlsberg are doing is not just bad for business, it is bad for the economy. If other companies start to unilaterally dictate onerous terms, then small businesses will be driven to wall. In these hard times, small businesses need all the help they can get and if they offer valuable services and products they should not be discriminated against simply because they don't have enough muscle to fight back.

The Business Secretary and PM talk a great story about how they help small businesses; this is a specific and practical example of how they can help. They can enforce Carlsberg to offer consistent and fair terms to all its suppliers, regardless of the amount of business they do with each. If the Government fails to act, we will get a free for all.

It is time to forget about and stop pandering to the super-rich and get down and help the backbone of this country - small businesses.

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