Paying suppliers promptly during coronavirus
19 March 2020: for many small businesses hit by the fallout from the coronavirus outbreak, getting cash in the door from their customers could be the difference between survival and failure, writes Iain Wright, Director of Business and Industrial Strategy at ICAEW.
It is no exaggeration to say that we are about to embark upon one of the most unprecedented periods in modern peacetime history. Coronavirus is unleashing significant health concerns and is doing so at an accelerating rate.
The health crisis is real and is leading to shock and disruption. However, running in parallel with the health crisis is the economic crisis. As the virus started and spread from China, the initial economic impact was the rapid disruption to supply chains and global manufacturing processes.
This economic impact has swiftly shifted into something much more fundamental. For the first time in peacetime, government advice is for what is to all intents and purposes the sharp cessation of most economic activity. Social distancing and non-essential contact with others, involving avoiding going to the office, pubs or mass gatherings, for a services-based, consumer economy amounts to the most significant disruption of business and society since the Second World War.
The UK is a nation of small businesses. There are 5.9 million enterprises in the country, and more than 99% of those have fewer than 250 employees. Over three-quarters of businesses have no employees other than their owners. Chartered accountants are at the heart of these small businesses: they could be running them, in a wide variety of sectors, or acting as a trusted adviser, helping those businesses to navigate what has become a rapid and unprecedented tempest.
With such an abrupt cessation of economic activity and demand, businesses are rightly concerned about cashflow. In the main, the smaller the business the smaller the resources available to it and the less able they are to withstand such shocks. For many businesses at this time, getting cash in the door from their customers could be the difference between survival and failure.
Last week’s Budget promised relief from business rates and grants for firms to help tackle liquidity problems arising from the coronavirus. Banks have also promised payment holidays for businesses and individuals to help cashflow. But a coordinated effort, involving all of the important actors within the economy, is essential if many businesses are to survive.
That is why ICAEW, along with other business groups such as the British Chambers of Commerce, Enterprise Nation, Federation of Small Businesses, Institute of Directors, IPSE and The Entrepreneurs’ Network are working with the Small Business Commissioner to call for larger firms to consider urgently accelerating invoice payments to the small business community.
If an invoice has already been approved for payment, we are calling for larger firms to make the payment immediately. Getting money into a smaller supplier’s bank account as rapidly as possible could make a big difference for company survival.
The supermarket Morrisons is leading by example during this crisis. The grocer announced this weekend that for all suppliers with a turnover of up to £1m, payment will be made immediately. This move could keep many small suppliers afloat in the immediate term, saving livelihoods and businesses built up over many years. It is hoped that other big companies will follow suit.
In this health crisis, despite the social distancing, it is clear that communities are coming together to help the vulnerable and give them a helping hand. With this economic crisis, that same sense of cooperation from those with larger resources is needed. If you can, pay your smaller suppliers faster to help them survive.
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