New UK regulation helps SME suppliers collect debts faster; improve cash-flow

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SMEs in the United Kingdom which have been struggling to get paid from their larger B2B corporate clients appear to be in for a sigh of relief.

Industry regulators have entered the financial arena of SMEs in the country and have worked out a system to gradually ease this larger supplier sector, from the pains of the extended debt settlement terms agreed with their B2B clients.

Extraction of extended payment terms from small suppliers has been a ruthless practice of the bigger players in the industry, even globally, and this has resulted in the SME sector facing huge cash-flow problems for years.

In the UK, the regulator authority has come up with a ‘Duty-to-Report Rule Book’, which requires corporations operating on British soil to make their B2B payment practices public. The regulations came in effect last month.

The legislation also lays down that non-compliance to the Rule Book would attract heavy penalties and the business entities would risk being booked for a criminal offence, if information about timely supplier payments is not shared.

The impact of the ordinance is yet unknown as the market is awaiting sufficient information flow from the corporate sector, it is learnt.

Research has also revealed a shocking picture of the crisis these SMEs have been facing throughout these years due to such unfair practices. An overview:

  • 18% of the small-scale entrepreneurs are on the brink of bankruptcy or liquidation as a direct result of late payments.
  • 42% said they have been forced to take out a loan to cover cash flow issues resulting from delayed invoice settlements by clients
  • 21% are struggling pay their mortgage or rent, while one-third of them are facing cash flow starved to settle business rates.
  • 36% SME entrepreneurs have forgone their salaries to cover their business expenses.
  • At least one-fifth among them, found no option than to sell their personal belongings to stay afloat in business.
  • Over 30% of the SME owners admitted that their payments to staff have been delayed for several months, causing employee unrest and frustration.
  • 29% of the respondents agreed that cash-flow crunch has affected employee morale, recruitment and retention of employees

With all these and more, entrepreneurs in the sector are more than mentally-strained and are losing sleep over financial worries. Many have fallen victims of psychological depression, anxiety neurosis and similar conditions. The percentage of such cases came to 29% of the respondents, the survey noted.

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