The Shorthand – better late than never for payments?

Welcome to this week's edition of The Shorthand, your weekly digest of the top news stories that affect small businesses in the UK! Here, we break down the stories you may have missed during the week, detailing what they’re all about and, more importantly, why you should care.

And all that in under 5 minutes.

Go on, put the kettle on and we’ll have you caught up with the most pressing business news stories of the week by the time you’ve finished a cup of tea.

1. Small firms feel the pinch of late payments

What’s happening here?

Research conducted between April and June 2022 was released this week by the Federation of Small Business (FSB), showing that half of small businesses report being paid late by their clients, putting increased pressure on their cash flow.

Back in October 2020, the government proposed new powers for the small business commissioner that would allow them to fine late payers, potentially helping protect small firms from the negative effects of cash flow disruption. However, these proposals have yet to come to fruition. Even existing powers that the commissioner held to “name and shame” poor payers through regular reports have not been used since February 2020.

The situation does not appear to be getting any better, with 20% of respondents to the FSB’s survey saying that late payments were getting worse. There have, meanwhile, been significant voices calling for major interventions from the government. Phil Hall, head of public policy at the Association of Accounting Technicians, has proposed scrapping the current policy of larger companies publishing their payment performance and introducing legislation forcing larger businesses to pay their suppliers at least 95% of what is owed within 30 days, or face fines.

Why should you care?

Any small business owner will know that cash flow is vital to running a successful small firm. With tight margins and soaring overheads, keeping a steady and reliable income flowing can be the difference between sinking or swimming for the millions of small businesses that make up the backbone of the UK economy.

As long as larger businesses are not held fully accountable for late payments to their suppliers, then the inequity in power and influence between small and big business will persist. It is in the interest of all small businesses in the UK to push for changes to the way in which late payments are punished, not just from the perspective of cash flow, but as a way to redress the power dynamic between the smallest and largest businesses in the UK economy.

As far back as January 2021, the government’s Prompt Payment Code (which asked big businesses to commit to paying suppliers within 30 days) had 3,000 signatories from the big business community. However, if the problem is not just persisting but getting worse, then this is perhaps indicative that something more needs to be done.

2. Small businesses harbour doubts over cutting carbon emissions

What’s happening here?

As environmental issues and the effects of climate change move closer to the forefront of many people’s thoughts. New research conducted by Start-Up Loans, part of the British Business Bank, suggests that as many as 2 million micro businesses do not think that cutting their carbon emissions will help combat climate change.

However, half of all businesses surveyed said that they would value information that would help them assess whether reducing carbon impact would make financial sense for their business. In this sense, while there is skepticism around whether carbon reduction is worthwhile for enterprises, there is an appetite amongst small businesses to know more about the financial viability of sustainability.

Small businesses are skeptical about the degree to which reducing their carbon footprint will help reduce climate change.

Why should you care?

The reason that understanding and acting on environmental issues is of vital importance to small business owners is quite simply because of how important the issue is to consumers. For any small enterprise to survive and grow, they need to be responsive to the consumer market and research indicates that the attitudes of consumers to the environment is changing.

A report by Hearts & Science suggests that over half (52%) of consumers take a business’ environmental credentials into consideration when choosing which products to purchase. Furthermore, 21% of consumers report having stopped buying from businesses because of their environmental impact.

So, if environmentalism matters so much to consumers, why are so many small businesses lagging behind, or not engaging with efforts to reduce carbon emissions? Well, one of the most telling revelations of the survey was that 50% of small businesses found the language and terminology around sustainability inaccessible. More than three quarters of small businesses (78%) say they don’t fully understand the term ‘net zero’ and 46% say they don’t know where to go to find information about operating sustainably.

Given the march towards sustainability in business is seemingly consumer-led, small businesses must take active steps themselves to learn about, and implement sustainable practices to remain competitive in the long-term.

Read more about how to become a more sustainable business.

3. Businesses look to the domestic market for growth

What’s happening here?

The last 12 months has seen a dramatic shift in how the UK’s small businesses aim to achieve growth. Since 2021, the percentage of small enterprises seeking growth in the domestic market has jumped from 66% to 80% while those seeking to trade overseas has stagnated.

The quarterly Business Barometer report, from Novuna Business Finance, highlights two principle reasons for the shift in where UK small businesses are seeking growth opportunities. Firstly, the fallout from Brexit has contributed to a significant rise in bureaucracy when trading with the EU, as well as scenes of chaos at ferry ports and delays in importing and exporting goods.

Secondly, the report highlights issues around sustainability as being a factor in the shift towards domestic growth. Of the small businesses that actually are taking active steps to reduce their carbon emissions, 81% were seeking new opportunities closer to home, within the UK, rather than internationally.

Why should you care?

Perhaps the most important takeaway from this newly published research is that this shift in focus from international to domestic markets appears to be relatively uniform across every industry in the UK economy. It is reported that at least two thirds of small businesses in every sector are actively seeking new growth opportunities within the UK market.

As the effects of Brexit have impacted a great number of small businesses across the country, it is crucial for small business owners to know how they might be able to mitigate the negative consequences of the withdrawal from the EU bloc. By pivoting away from overseas markets and focusing on growth within the UK, small businesses are making a decision that is beneficial to them, but also one that strengthens the UK domestic economy as a whole.

The head of insight at Novuna Business Finance, Jo Morris, summed it up commenting:

Enterprises have not lost faith in the EU market for the long term, but they have redoubled efforts this summer to maximise new market opportunities on their doorstep. In an age when managing costs is a top issue for many enterprises, the renewed focus on the domestic market will make financial sense for many business owners.