The payment practices of big businesses during the pandemic have been revealed in a new report which calls for legislated “fair buyer” 30 day payment terms, as part of a plan to support SMEs in their economic recovery.

Xero, the global small business platform, found that 59 percent of small business owners in the UK said that corporate customers increased the length of their payment terms during the pandemic. This impacted on numerous aspects of their business including their ability to hire and retain staff, and comes as new data from the ONS suggests unemployment is at 4.8 per centin July to September 2020.

The research also found that 37 percent of SMEs felt squeezed by corporates during the crisis. Nearly three-fifths (59 percent) of SMEs were asked by their bigger clients to cut their fees and prices. 40 percent feel that their bigger counterparts were asking them to do more for less money.

Five poor payment practices by corporates during lockdown:

  • Increasing payment terms (59 percent)
  • Asking SMEs to reduce fees (59 percent)
  • Asking SMEs to change their wider terms & conditions (49 percent)
  • Asking SMEs to do more for less money (40 percent)
  • Treating SMEs like a supplier rather than a partner (37 percent)

The implications of these poor payment practices on small firms are severe according to company owners: 15 percent of SMEs felt this stopped them from taking on more business, 14 percent felt that it stopped them from retaining customers, 13 percent felt that it stopped them from investing in new technology and 11 percent felt it stopped them from retaining staff.

In September 2020, small business revenue was at 9.2 percent below the national average pre-pandemic and employment was down by 1.8 percent amongst British small businesses. The data comes from Xero Small Business Insights (SBI), its barometer of the small business economy, which is based on anonymised and aggregated data from hundreds of thousands of Xero’s UK customers.

Gary Turner, MD 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 percent by one corporate who 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, Creative 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. “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 6 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.”

There are some positive stories however. More than one third of SMEs (34 percent) felt that big businesses treated them well during the pandemic, with almost one third of SMEs (32 percent) revealing that big businesses actually asked them to increase their fees. Some small firms (37 percent) even felt that their relationships with big business customers improved during the pandemic.

Meggie Palmer, Founder of Pep Talk Her had a positive experience and worked with her big business clients to come up with solutions that worked for both businesses: “I reached out to our clients who we have great relationships with and explained that I was a little worried about cash flow and that here is how I could help them, in exchange for them helping me. They were super kind and open to having a discussion and being creative to brainstorm situations that were a win for both of us.”

Xero is asking the government to legislate ‘Fair Buyer’ 30-day payment terms in order to hold large businesses accountable to SMEs, change the late payments culture in the UK and help small firms with their cash flow as part of its Roadmap To Recovery manifesto.

The small business platform has met with MPs as part of its ongoing campaign to raise awareness of the late payments crisis, in an effort to help small firms to manage cash flow and maintain adequate reserves.

Xero’s Roadmap to Recovery Manifesto can be downloaded here