You know the story ‘small business wins huge deal with large client’. Amazing.
Everyone is celebrating. ‘Biggest deal we’ve ever had. OMG’
So after the win, the small business sends their terms and conditions for signing and the big client comes back with “we can’t sign your payment terms of 14 days, our payment terms are 60 days after the end of the month of invoice”, that is, if you are lucky, because the reality can be 90 days or more. Which is really bad for business, especially small businesses.
But, the small business agrees because ‘it’s such a good opportunity’ not necessarily aware of the consequences or too afraid to challenge the big client for fear of losing the deal.
Of course, this is never usually discussed in the initial client meetings – budgets maybe, but not trading terms.
But we think it should be because not every client is a good client.
Good business relationships should be built on a fair exchange of value where both buyer and seller can build and foster mutually beneficial relationships.
Yet too many small businesses find that they have delivered the work, kept their promises and now have to wait for 60/90/120 days for payment. Even then it’s quite common that the agreed term passes and still no payment.
Even when trading terms may have been agreed upon it doesn’t mean that clients, especially the big clients stick to these terms. Often, businesses with trading terms of 7, 14 or 30 days -which is standard for most businesses- are left waiting for payment more than 60 or 90 days or even worse.
For too long, too many large businesses, and corporates especially, have taken undue advantage of their might and delayed payments for months.
This is disastrous for SMEs, especially small businesses who need regular cash flow to stay in business. This delay in payment can even spell the end for some small businesses. The flow on effect also affects other businesses interconnected with the one waiting for payment. And the effort in person hours required to follow up and follow up with these, often obtuse, accounts payable departments can be very draining and a nightmare.
The EU has recognised that big business has been errant in their dealings with SMEs and brought in legislation back in 2011 to hold big businesses to account when it comes to fulfilling their payment obligations.
The same is now happening in Australia. After Telstra and Rio Tinto announced that they would change their payment terms to SMEs to 20 days, the Australian Small Business and Family Enterprise Ombudsman Kate Carnell said there was no reason for other big businesses to do the same, and that she would recommend federal legislation requiring all businesses to be paid in 30 days.
In the announcement, Ms Carnell also cites a study by Harvard Business School which found that when the Obama administration moved to 15 day payment times, it created 75,000 jobs and delivered an additional $6 billion to US workers’ pay packets. So it’s not only a matter of fairness and doing what is right for fellow business people, but it’s good for communities and the economy overall.
Remember, everybody lives by selling something
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