Sole traders and micro-firms: the true Credit Crunch victims?

By: Mark Williams

Date: 5 August 2010

It’s a familiar criticism and one with which I have more than a measure of sympathy. Those nasty, greedy banks, eh? After all we’ve done for them, letting them off scot-free for the mess we’ve all ended up in, even bailing out some of the worst offenders with obscene amounts of taxpayers’ money.

And how do they repay our generosity? By not lending money to small and medium-sized enterprises (SMEs), that’s how. Well, there’s gratitude for you.

With many of the banks recently announcing huge profits, it could become difficult for some of them to continue to justify their ongoing reluctance to make credit more available to businesses – especially with mounting government criticism from Vince Cable and others. And then there are the bankers’ bonuses, of course. God forbid the day when these aren’t being paid.

Better access to credit at affordable prices could seriously ease the cashflow crises many SMEs regularly face, yet despite having direct experience of the serious strain lack of cash creates, why are so many SMEs so bad when it comes to paying their own suppliers on time?

As a freelance editor and writer, unfortunately, I speak with a lot of experience. And it’s not just the knock-on effects of having to wait for cash, as bad as these can be. It’s also the additional unpaid effort that must go into chasing money.

Not all of my customers are ‘bad payers’. There are a couple who realise that one-man-band freelances simply cannot afford to wait for their invoices to be paid. We must pay our bills and operating expenses and try to put food on the table like anyone else. Understanding customers are worth their weight in gold. These are the people you want to work for, the ones for whom you don’t mind going above and beyond the call of a purchase order form or commissioning note.

However, no matter how great the work you do or how much flexibility you show, there are other customers who use every delaying tactic in the book to get out of paying their bills on time, from pretending ‘X from accounts is on holiday at the moment’ and ‘Oh, I don’t remember receiving your invoice…’ to simply ignoring polite email reminders.

They know they can exploit the situation by ignoring timid ‘please pay within 30 days’ requests at the bottom of invoices, because – what are you going to do – charge them interest? What, at current rates? Good luck. Even if you are prepared to ask for interest (providing you’ve made this apparent in your terms and conditions), they’ll probably stop using you. After all, it’s a buyer’s market in most sectors at the moment and always has been.

In recent years, things seem to have become much worse. The ranks of the brass-neck late-payers – the sworn enemies of cash-strapped sole traders and micro businesses throughout the land – seem to be swelling. Delaying paying invoices, often to everyday self-employed people who need the money to survive and who themselves cannot get bank credit, seems to have gradually become ‘the way things are done’, a kind of malevolent current business convention.

In the post-Credit Crunch world, were it not for the millions of sole traders and micro-firms who have no choice but to bite their tongues and wait patiently for their money, the situation for many larger businesses would be much more bleak... You’re welcome.    

Mark Williams, Start Up Donut editor

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