The Covid-19 pandemic has brought major challenges for businesses around the world – and for small suppliers, one of the most pressing is an increase in late payment by customers. This issue was explored in a recent Working Capital Forum webinar, Supporting smaller suppliers in a time of crisis, in which an audience poll revealed that 46% believe large corporations are reacting to the crisis by paying their suppliers later. 

Of course, late payment is not a new problem for many smaller businesses: research published last year by Pay.UK found that 63% of SMEs were impacted by late payment. But as Philip King, the UK Government’s Small Business Commissioner noted during the webinar, Covid-19 has further exacerbated this issue. And many are facing existential challenges during this difficult period: a survey of over 5,000 firms by the Federation of Small Businesses (FSB) found that of the small companies forced to close during the outbreak, a third are not sure if they will ever reopen.

Transactional vs emotional 

King said that in the current crisis, there have been examples of good practice. Supermarket firm Morrisons has said that it will pay its small suppliers immediately in order to help them weather the crisis, while housebuilder Taylor Wimpey is paying self-employed contractors in advance for future work. But not all businesses have put their suppliers’ interests first during the crisis. King said some companies have “simply written a blanket email to their entire supply chain and said, ‘Sorry, we are not going to pay you anything until this crisis is over.’”

As King pointed out, businesses which take the latter approach “are focusing on the transactional rather than the emotional” and are not considering the extent to which small businesses can be affected by late payments. “For the micro-business that doesn’t get paid, that is often the difference between putting food on the table, or not,” he said. 

As well as writing to businesses that are “doing the right thing” to thank them on behalf of the small business community, King has also written to other businesses asking them to consider their actions. “I am pleased to say that in many cases, those businesses have amended the way that they have behaved,” he said.

Stepping up

For companies looking to protect their supply chains during this crisis, interest in early payment programs is soaring. David Venables, Director at Taulia, noted that early payments are substantially higher compared to the same time last year. Encouragingly, he said this is not only because of companies seeking cash for solvency, but also from companies which are “seeing increases in demand and needing capital to support the increased production that requires.” 

However, Venables also said that crises “tend to reveal that the plumbing of our global financial system really works for the big companies, but not small ones.” Against this backdrop, Taulia has responded to the crisis in a number of ways:

  • Mechanics – Taulia is making early payment available to the suppliers that need it the most by taking steps to ease technical integration while still offering all-important scalability. While resources are undoubtedly stretched at present, Venables said: “Our advice is that it is better to try and take the resource impact now, and minimize the resource demands of the program further down the line.”
  • Product development – Taulia has made incremental improvements to help businesses navigate the current crisis, such as the launch of Rapid Start Invoicing, an automated invoice processing solution that can be up and running within seven days; the introduction of a Covid-19 Resource Hub, and making three cash analytics solutions available free of charge. These steps come alongside developments already on Taulia’s roadmap, such as AR financing functionality which will give SMEs another tool to optimize their working capital.
  • Liquidity – recent developments include the introduction of different funding options for buyers, including a proprietary structure enabling treasurers to syndicate their own programs across relationship banks, as well as a recently announced strategic alliance with J.P. Morgan. Venables also noted growing interest in non-bank sources of liquidity.
  • Program success – When it comes to positioning early payment programs for success from the outset, Venables emphasized the importance of gaining commitment from buyers, suppliers and providers, as well as the need to break down any internal silos between Accounts Payable, treasury, finance and procurement.

Where next?

While the global economic outlook for the coming months may look bleak, not all businesses are being affected by the crisis in the same way. Many sectors are facing major struggles due to a dramatic reduction in demand, such as the services, auto and airline industries. But others have seen demand significantly boosted by the crisis. “We are closely monitoring the mix of our business across resilient and less resilient sectors,” Venables commented.

He added that 2021 is likely to bring a strong recovery in world growth, for a number of reasons. For one thing, the economic downturn has not come as the result of an asset bubble collapsing – and as Venables pointed out, “company valuations should always be viewed in the long term.” Another positive factor is that governments have taken steps to help firms deal with short-term cash flow shortages.

In the meantime, many companies which have previously been interested in early payment programs are now rushing to put a program in place. “I don’t think it matters if we have come out of the crisis by the time the program is up and running,” Venables said, noting that now is the time to make the structural changes necessary so that businesses will be better placed to withstand any future crisis.

As the webinar drew to a close, King had a powerful message to share: “Trading partners are going to remember those businesses that did the right thing through this crisis, and worked together with their supply chain. And I think that is going to be quite telling.”

To learn more, listen to the webinar.