The payment practices of big businesses during the pandemic have been revealed in a new report which calls for legislated ‘fair buyer’ 30-day payment terms, as part of a plan to support SMEs in their economic recovery.
Xero’s research found that 59% of small business owners in the UK said that corporate customers increased the length of their payment terms during the pandemic. This impacted on numerous aspects of their business including their ability to hire and retain staff, and comes as new data from the Office for National Statistics (ONS) suggests unemployment is at 4.8% (July to September 2020).
The research also found that 37% of SMEs felt squeezed by corporates during the crisis. Nearly three-fifths (59%) of SMEs were asked by their bigger clients to cut their fees and prices. Some 40% feel that their bigger counterparts were asking them to do more for less money.
The report highlighted five poor payment practices by corporates during lockdown:
- Increasing payment terms (59%)
- Asking SMEs to reduce fees (59%)
- Asking SMEs to change their wider terms and conditions (49%)
- Asking SMEs to do more for less money (40%)
- Treating SMEs like a supplier rather than a partner (37%)
The implications of these poor payment practices on small firms are severe, according to company owners: 15% of SMEs felt this stopped them from taking on more business; 14% felt that it stopped them from retaining customers, 13% felt that it stopped them from investing in new technology; and 11% felt it stopped them from retaining staff.
In September 2020, small business revenue was at 9.2% below the national average pre-pandemic and employment was down by 1.8% amongst British small businesses. The data comes from Xero Small Business Insights (SBI), its barometer of the small business economy, which is based on anonymised and aggregated data from hundreds of thousands of Xero’s UK customers.
Gary Turner, MD and co-founder of Xero, said: “We have heard from small businesses who have received shocking payment requests from their large customers during the pandemic. One business was asked to drop their prices by 10% by one corporate who also wanted to extend their payment terms to 90 days. But it’s encouraging to see that some corporates have been more understanding. We must remember that late payments can affect cash flow to the extent that a small business won’t survive.
“We’re calling for 30-day payment terms to become the new standard with immediate effect, to ease the pressure for many small firms who are struggling to balance their books.”
There are some positive stories, however. More than one-third of SMEs (34%) felt that big businesses treated them well during the pandemic, with almost one-third (32%) revealing that big businesses actually asked them to increase their fees. Some small firms (37%) even felt that their relationships with big business customers improved during the pandemic.