In the intricate web of business activity in the UK, the relationship between large corporations and SMEs plays a pivotal role in shaping the economic landscape. With SMEs accounting for 99.9% of the UK business population, their importance and contribution to the economy is crucial.
Despite this, 2023 has seen the largest net decrease of small businesses on record. The UK government has announced plans to introduce new measures to support SMEs, it's now time for major corporations to play their part.
As businesses continue to struggle against the backdrop of the cost of living crisis, cash flow issues have become a major concern. With more than half of SMEs still waiting on unpaid invoices from last year, we are increasingly seeing larger companies use their financial stature to skew the power dynamic between SMEs and themselves, taking advantage of long remittance cycles and leaving small businesses waiting for payment. This practice disrupts the operational vitality of SMEs and causes invariable damage to the economy in the long run.
Levelling the SME payment playing field
The backbone of our economy, SMEs contribute significantly to job creation, innovation, and overall economic dynamism. Cash flow, the lifeblood of SMEs, is severely impacted when payments are delayed. This can lead to a domino effect, affecting the ability of SMEs to pay their own suppliers, employees, and operational expenses.
Beyond financial repercussions, the practice of delaying payments strains relationships between large corporations and SMEs. It creates an uneven playing field where the economic giants have the upper hand, dictating terms that can be detrimental to the survival of smaller businesses.
Paying SMEs on time is not just a matter of financial importance; it is an ethical imperative. When large corporations prioritise timely payments, they contribute to a fair and equitable business environment. Additionally, ethical business practices build trust and create a symbiotic relationship between the corporate giants and the smaller enterprises, driving economic diversity as a result.
Addressing the issue of delayed payments is also economically strategic. Government figures estimate that paying small businesses on time could boost the economy by £2.5 billion annually. Improving the cash flow of SMEs will, in turn, remove barriers to growth for these companies.
Corporations need to adopt transparent payment practices
A thriving SME sector bolsters economic resilience, diversifying the business landscape and reducing dependence on a few major players, strengthening the supply chain and leaving the economy with a sturdier base.
With this, it's time for corporations to work harder to support SMEs. With the government already addressing this issue from a policy standpoint, collaborative effort across the corporate world is now required. This begins with large corporations adopting transparent payment practices and publishing payment performance data, creating a culture of responsibility and making it possible to hold the worst offenders to account.
The responsibility of large corporations to pay SMEs on-time extends beyond financial transactions; it is a moral imperative and a strategic investment in the economic health of the nation. By addressing the issues caused by late payments, adopting ethical business practices, and implementing concrete measures, we can create an environment where both SMEs and large corporations thrive, contributing to a more resilient and dynamic UK economy.
Michael Schrezenmaier is the CEO Europe of SumUp, a global payments startup which just raised €285 million despite a global fintech funding crunch.