Enterperise Biz-Tsar

It's good to know that our Enterprise Tsar, Lord Sugar, is there batting for all us small businessmen in his role to advise the Government on such matters that affect us.

His professional and positive approach was to explete vehemently with his back to the camera when asked, at an Exhibition on How To Survive a Recession, what did he advise for businesses in the recession. He then came back to the camera, visibly upset, to say we should stop talking about a recession as there is not one. Despite the fact his own Government's figures tell us that, in fact, we are still in one.

During his speech in Cambridge he was critical of small businessmen who 'whinged' and implored they should get on and 'adapt'.

While his bull faced staring down of the recession is a positive and bold attitude, calling small businessmen whingers in the face of their pleas to be heard by the Government was not exactly what people wanted to hear - except those who could afford to be at the exhibition. Once again, it is worth reminding ourselves, Lord Sugar and the Government that small businesses represent 97% of all the companies in Britain and employ 13m people, paying a disproportionate amount of tax into the coffers via Corporation and PAYE tax. In the scheme of the vast stimulus packages wasted on the financial system, the amount of credit to such businesses has been reduced by nearly £15bn this year. It is not even a small crumb of comfort that interest rates have been again pegged at 0.5% and QE has been increased by £25bn when most of that aid does not flow into the economy at large.

It would help if an Enterprise Tsar stopped representing his own views and values and understand how this recession is affecting small businesses, many of whom will not survive this year and have contributed disproportionally to the rising figure on unemployment.

To take just one example from the weekend's papers. Small, independent shop owners have gone to the wall at an alarming rate this year while huge supermarkets announce growing profits and sales - over 500,000 have lost their jobs in that sector alone and some 12,000 businesses have failed. Tesco, Waitrose and even Marks & Spencer, meanwhile, have thrived.

Perhaps Lord Sugar should down into the detail and look at which businesses have been favoured in the stimulus strategy. No doubt, companies like Viglen, which he owns, have benefited nicely from increased Government spend in the schools sector.

For a man who is normally well at ease when he has plenty of script to work with in front of the cameras, he was pretty poor when asked about his supposed specialist subject ad hoc.

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.

Show Me The Money

All small businesses are exposed to the risk of slow or even no payments from clients. When you are a service business like mine, very often it is prudent to insist on upfront charges or faster payment. But sometimes, no matter what the contract says, if a large client pays late, there is little you can do but grin and bear it.

The inequity of the system is brutal as very often the very client who withholds money on you, is a company who has a cash business at the front end.

Large Companies Can Be The Biggest Sinners

I recently highlighted the problem showed in the Panorma Show where Boots plc had unilaterally, without warning, changed the payment terms for its suppliers.

I have experienced the same but without the courtesy of a letter - it just happened.

For most small businesses, while it would be great to actually slap a writ on a client, in practice it is not possible to get too heavy. A large client is, after all, providing a source of revenue and profit. However, this month things changed for me, when my largest current customer held payment on invoices dating back to before Christmas and has paid only the smallest invoices as a show of good faith which merely covered expenses not fees since. Having crossed the boundary of VAT due dates, I have now paid all the VAT on those invoices and without any cash in, so salary costs to my contractors and myself have been delayed.

However unacceptable I may think this is, and there have been plenty of urgent communications to get this sorted out, in reality I cannot get too angry and throw my toys out of the pram as they have shown in the past that they eventually pay, their credit rating is good and they are one of the lucky companies who are enjoying growth in recessionary times. It is the sort of client I can ill-afford to be without.

I suppose I should just thank the Lord my business is not dependent on the Public Sector who, despite the rhetoric of Mr. Brown, are the worst payers in business by a long chalk.

The Prompt Payment Code

The new Prompt Payment Code (PPC) was devised in and introduced in December last year. Any company can sign up to it and it is purely voluntary with no recourse in law - usual rules apply. Signatories sign up undertake to:

1. Pay Suppliers on time - within agreed terms at the outset of the contract, without attempting to change payment terms retrospectively and without changing practice or length of payment for smaller companies on unreasonable grounds.
2. Give clear guidance to Suppliers - by providing them with clear and easily accessible guidance on payment procedures and ensuring there is a system for dealing with complaints and disputes, which is communicated to Suppliers. Suppliers must be advised promptly if there is any reason why an invoice will not be paid within agreed terms.
3. Encourage good practice - by requesting that lead suppliers encourage adoption of the code throughout their own supply chains.

The PPC is being monitored by a festoon of organisations like the Institute of Credit Management, the Federation of Small Businesses and the Forum of Private Business. Sadly, none of these organisations have any real teeth and none have good membership from larger companies. The trouble often with such initiatives is that they look good on paper but because you do not have to buy in and cooperation of large businesses or Government Departments, then it is likely to fall by the wayside.

Our Worst Nightmare

I have been doing a lot of business in Italy of late and the one thing that strikes you is how businesses survive over there. Credit terms are generally understood to be 60 days at the very minimum but are often at least 90 days and more like 120 days and yet more with Government Departments regularly taking 6-9 months to pay bills. This, of course, has a massive ripple effect as it cascades through the supply chain. You might think that correspondingly prices are higher in Italy to compensate for this but the reality is the opposite - if anything, competition is more keen.

For companies entering the Italian market, if at all possible, do so via a partnership or Distribution and just make sure they are financially solid enough to manage your market on your behalf, even if that costs some extra discount as is likely.

Britain, in my opinion, is fast becoming the same way. Large firms are using suppliers as a source of credit as banks are not so easy with their money any more.

Spin And Guff

Professor Nick Wilson of Credit Management Research Centre at Leeds University believes the PPC is just PR spin both from the Government and the signatories and it has all been seen before. There have been similar attempts at codes in the past but Government did not get behind it and impose its rules - Government even withdrew funding for the Better Payment Practice Group which really said it all.

Wilson agrees with me - in his opinion, the situation has worsened considerably for smaller businesses over the last 10 years.

Your Rights

In 1998, the Late Payment of Commercial Debts (Interest) Act gave small businesses a statutory right to interest on money owed to them by large companies or the public sector and to claim debt recovery costs. However, it is a case of cutting off your nose to spite your face as few companies resort to the law for fear of losing their clients' business.

It is a real Catch 22 situation.

Naturally, when the rights were extended to big businesses, they had no problems enforcing it. For many smaller businesses, it means they are getting squeezed at both ends - larger suppliers giving them aggressive payment terms which they are penalised heavily for if they transgress while large companies refuse to hold to their payment terms who are their customers.

Also, a case in question is VAT payments. In the case when a large customer has not paid on time and you cross a VAT quarterly boundary, and if a large supplier has held off paying for 60 to 90 days, you can end up paying all the VAT without money coming in. The Government sees only you and not your customer, who they are happy in the same quarter to reimburse the exact same VAT you have charged them.

The system is a complete mess and penalises the company that has not been paid.

In reality, there is little that can be done about the situation. SMEs are right in the middle and we make up over 90% of the volume of companies in this country and account for 13m employees yet we have a minor say in how the process should run and no voice when it comes to large company customers and Government not paying.

Companies Signing The PPC

Notable companies like Asda, British Gas and John Lewis have signed the PPC code had little to say when contacted on the subject and this bears out Wilson's PR spin accusation. It's all for show. Asda, for one, has actually implemented some good schemes to help. They have won awards for their supplier schemes and 'Where's My Invoice?' is one which allows suppliers to go online and track their invoice through the Asda payment system to be able to tackle issues which may delay payment as and when they occur not when the money is overdue.

Real Experiences

The large customer I refer to has not signed the PPC and is not interested in doing so. Just this morning in answer to my latest protestations, an accounts clerk has asked me to send a Statement of Account, then having denied receiving it despite a read-alert warning telling me they had not only received it but read it, they then claimed they had not received any of the invoices despite me having read-receipts for them all.

Of course, calling them liars does not help the situation and may well jeopardise future business, but I don't think this is at all unusual for small businesses. We are at the mercy of the system and until Government actually puts their money where their mouth is on this issue like cleaning up the VAT payment scams, then we will always be at the bottom of the food chain.

I hope Lord Mandelson gets to read my blog - his ears should be burning at least!