Will new Enterprise Bill prove a catalyst for small business innovation?

Gareth Poppleton, managing director of SME specialist payments provider, Retail Merchant Services, discusses whether the new Enterprise Bill will signal a small retailer uprising – or whether business will just continue as usual.

Supplier treatment has become a political hot potato within the retail industry, with a report into supermarket practices last week naming and shaming some of the country’s grocery heavyweights for poor legislative compliance.

The issue of poor supplier treatment is endemic way beyond the food sector. It’s not just profit margins that have come into question, either; many major retailers use their authority as a manipulative tool to pay smaller business suppliers later than the terms of their agreement. In fact, the Department for Business Innovation and Skills reports that UK SMEs are currently fighting in excess of £32 billion in late payments.

Although the previous government launched a prompt payment code, the Enterprise Bill will take the backlash against poor payment terms to the next level with the proposition of a Small Business Conciliation Service. This will enable SMEs to settle financial disputes at a lower cost than pursuing their case through the traditional legal system.

The move is welcome news to the small business community, for two reasons. Firstly, it provides companies left out of pocket with a viable means of escalating disputes in a manner that doesn’t end with a cripplingly large bill.

Secondly, it puts a cultural stake in the ground, warning retail powerhouses that SMEs are prepared to be David to their Goliath. Too many corporations paint their smaller suppliers into a corner by demanding substantial payment windows, or threatening to move their custom elsewhere if they try to renegotiate payment terms.

What makes this issue so important to the UK’s business landscape is the critical nature of cash flow within SMEs. Whereas major retail organisations have the financial resources to cope with fluctuations in revenue, an unexpected payment drought significantly impacts small businesses day-to-day operational capabilities – let alone their capacity to innovate.

And if that payment issue occurs more frequently, at the hands of one of their most lucrative customers, it can decimate growth prospects.

Therefore, the Enterprise Bill is a much-anticipated tide of change for small businesses; a chance to demand what’s rightfully theirs on time, and give them the cash flow comfort and security to start investing in bigger, more ambitious plans.

Of course, shifting away from a late payment culture won’t completely reimagine the balance of power in the UK business economy. SMEs still need to support their own growth by embracing the latest practices and technologies.

For example, it’s amazing to think at a time when cash has overtaken card as the most popular payment method, only four in ten small businesses currently accept card payments. Bringing their service offering in line with today’s customer expectations is a powerful means of generating instant revenue, at the same time as reducing the time and stress involved in chasing paper invoicing.

It’s going to take time to redress the balance of power between retail’s giants and the smaller suppliers behind their success. However, if SMEs can focus on the changes within their control to boost cash flow and support growth, the government’s ongoing support will add extra impetus to small business innovation.

For more small business insights, visit the Retail Merchant Services blog

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