By Daniel Hunter

Small businesses are being encouraged not to forego the basics of contractual agreements when working with larger firms if they are to prevent becoming victims of supply chain bullying.

Such bullying tactics by bigger companies include forcing suppliers to turn around unfair levels of stock in an unrealistic period of time, with SMEs then waiting beyond agreed terms to be paid.

Just recently supermarket giant Tesco admitted it needs to change the way it deals with suppliers after a breach of the groceries supply code of practice.

Insights gathered by Hitachi Capital Invoice Finance show that many small-scale suppliers could pre-empt such bullying and have greater control if simple financial processes weren’t overlooked.

John Morton, head of operations at Hitachi Capital Invoice Finance, said:

“Our data shows that almost one in five (18%) SMEs have to wait beyond 60 days for payment, with many invoices taking between 90 and 112 days to be settled. The culture in the UK needs to change when it comes to treating our small businesses fairly. It is often the small-scale supplier on the receiving end of bullying tactics from larger firms despite their squeezed profit-margins and the fact that many have to survive without a cushion of liquidity.

“For small businesses, a big contract with a large company represents a significant step. SMEs need to go back to basics when managing their supplier relationships with large firms. When raising an invoice, simple measures such as quoting a purchase order number, using a clear description of the goods or services provided and stating clear payment terms in a prominent position leaves little room for dispute from a buyer. To avoid any potential disputes over pay, after issuing an invoice, SMEs should follow it up with a courtesy call. It’s astonishing how many small businesses fail to adopt these simple measures.

“Some of the big supermarkets are forging partnerships with banks to offer suppliers financing arrangements while they wait for payment. However, SMEs need to take control of their own cash flow and explore all of their available options to alleviate immediate cash pressures.”

Small businesses often overlook invoice-lending arrangements as a way to safeguard their financial position. The alternative finance market is growing in popularity and options such as invoice finance provide companies with upfront cash for their invoices for a small fee, allowing owners to focus on other areas of the business.