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In the News14 December 2005 For many small businesses, getting payment from their customers is difficult. These customers are not ordinary members of the public going into a shop but tend to be examples of what is referred to as 'B2B' (business to business), for example a small firm providing supplies of water to a larger company. The small firm delivers 100 barrels of water each week. This clearly incurs cost on the part of the small company. The key is, when will the larger company pay for the water? It is unlikely to be a case of payment when the delivery is made. Most B2B activity of this sort will rely on the supplier generating an invoice. The invoice might allow the buyer a period of time to settle the invoice - often 28 days is regarded as standard. The skill for many smaller businesses is to manage the time differences between outgoings and the revenue streams that are generated from sales and this is where difficulties arise. Many small businesses complain that larger businesses are very slow in paying their debts. The market power lies with the bigger business. If they don't pay on time, what is the small business to do? Threaten legal action? Withdraw their supplies? Of course, they could try these things, but they are likely to be putting themselves into real difficulties if they did. So often they have to suffer; this is a regular cause of cash-flow problems. If they do eventually go out of business, the larger firm normally manages to find another supplier willing to fill the gap. The Forum of Private Business (FPB) was set up in 1977 to represent the interests of 25,000 small and medium sized enterprises (SMEs). It has complained to the Department of Trade and Industry (DTI) about the treatment being given to some of its members who deal with Halfords plc, the automotive, cycle and non-food retailer. It seems that Halfords has decided to change its trading terms. This has angered many SMEs, which claim they are being bullied by the tactics of the larger business, as it has the market power to flex its muscles. Halfords has informed its suppliers that it is changing its trading terms at the end of January 2006. Halfords has increased its payment terms to 120 days from 90 and announced that it will seek a 5% price reduction on all units. For many small businesses, they will have little choice but to accept the terms from this bigger buyer, which will put enormous pressure on their cash-flow positions. The FPB point out that Halfords is a FTSE 250 business with profits of £46 million, revenues of £337.3 million, running 402 stores and with rising sales and profit figures in recent years. It accuses Halfords of using its dominant market position to squeeze its suppliers and want the DTI to intervene on behalf of SMEs. The FPB point out that Halfords' success is due in part to the quality of the goods supplied to it and that it has a responsibility to pay its debts promptly. In other business relationships, codes of practice have been set up to help protect SMEs. The FPB want something similar to be established between Halfords and its suppliers in this case. Halfords do not seem to have offered any response to the allegations made, although their Web site does contain a prominent section on corporate social responsibility in its public relations section. Search the In the News archive:You can search the In the News section by using the form above or browse the stories using the links below. |
