Man in suit

SMEs are suffering from harsher payment practices by corporate clients, according to a new report.

Despite the sense of community spirit and togetherness that has been particularly present during the Covid-19 pandemic, Xero has found that 59% of small business owners in the UK are experiencing corporate clients increasing the length of their payment terms.

The study found that this caused a significant impact on their businesses, including the ability to hire and retain staff.

More than a third (37%) of SMEs said they felt “squeezed” by corporate clients during the crisis, while 59% said they were asked to cut their fees and prices. Four in ten said their larger counterparts were asking them to do more for less money.

Fifteen per cent of those surveyed said it prevented them from taking on more business, and 14% said is stopped them retaining customers. A further 13% said it halted investment in new technology and 11% were unable to retain staff as a result.

Gary Turner, managing director and co-founder of Xero, said: “We have heard from small businesses who have received shocking payment requests from their large customers during the pandemic. One business was asked to drop their prices by 10% by one corporate who [sic] also wanted to extend their payment terms to 90 days.

“But it’s encouraging to see that some corporates have been more understanding. We must remember that late payments can affect cash flow to the extent that a small business won’t survive. We’re calling for 30 day payment terms to become the new standard with immediate effect, to ease the pressure for many small firms who are struggling to balance their books.”

Luke Winter, create director at video production company Wallbreaker had to implement a payment plan for his clients to help him manage his cash flow better, which is taking up a significant amount of time to execute.

He said: “To try and mitigate the impact, we’ve been forced into offering payment plans over an extended period of time. This solution ensures we get the money in, but it’s now over six months instead of 30 days. The payment plans mean we’re spending what feels like half of a working week just chasing down invoices, which is really affecting our output and the worry of it all keeps me up at night.”

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