The opportunity to work with a big business can often be incredibly appealing. So much so that it’s easy to get swept up in the excitement of planning a new project or undertaking a large contract that you forget to think about what this really means for your business. While working with the big guys is always something to shout about, it can cause your cash flow to take a hit if you don’t consider the terms of your contract carefully.
We spoke to Liz Barclay, the Small Business Commissioner, recently about the pressures put on businesses from late payments and from that, Liz gave us her five top tips for working with bigger clients:
Your contract might seem clear enough, after all your client says they use ‘standard terms’, but what do standard terms really mean? Many SME’s fall into the trap of thinking that standard terms means 30 days until the money is in the bank but really this varies per business. It can mean 30 days, it can mean 60 days, it can mean even longer.
Longer payment terms are more common with bigger businesses and you don’t want to risk being caught out. If you don’t ask when you’re going to get paid then you may end up losing money because you don’t have the cash when you need it. Having certainty of when you’re going to receive money will ensure you know whether you can make your money last or whether you’ll need to take out loans or consider alternatives like invoice financing.
As Liz Barclay says, small businesses "can’t manage their cash flow if they don’t have certainty, and know, when they’re going to get paid". Without a clear payment date, you won’t be able to properly manage your own outgoings, so always make sure you ask what the standard terms really mean.
If you’re worried about whether a supplier or customer will pay you on time, or even if they’ll pay you, you can check with a Credit Reference Agency. These will allow you to see how they deal with their other customers and suppliers. Credit Reference Agencies are companies that collect and keep information about consumers’ borrowing and financial behaviour. Whenever you apply for credit, the lender will check the information you’ve provided against what is on your credit reference file.
Credit Reference Agencies hold data on a company’s regular payments, including any missed or late payments so you can check whether the business you’re working with is reliable. These companies are independent, so you don’t have to worry about them being biased towards your customers.
Whether you’re just starting out or are an SME with years under your belt, you may still be uncertain around the etiquette of contracts. The simple answer is - if you don’t ask, you don’t get. Big businesses will have a templated approach - the aforementioned ‘standard terms‘ - but that doesn’t mean you have to accept this.
Each relationship that a business establishes is different and your business needs will be different to those of their other suppliers and customers. If the standard terms don’t fit with what you need in order to manage your cash flow, pay your employees and pay for supplies or materials, then don’t be afraid to push back. Negotiation is normal and not something to be put off by. If the terms don’t work for you, consider asking for part payments or instalments to help tide you over.
As an SME, it’s likely that you provide a product or service that fits in a particular niche. You may have competitors but probably not too many, or at least not any that do exactly what you do in the precise way you do it. Remember that this means your business provides something of value and if a bigger client wants to work with you, they’ve sought you out for your specialism.
Once a business has invested time, money and effort into finding a supplier that can do what they want - they’ll want to keep hold of you. That’s because they’ll be hard pressed to find a new supplier that does what you do and not lose money in the process of searching. If a big business wants to work with you, ask for what you’re worth and don’t settle for less.
While opportunities to work with big business may be tempting, if the payment terms aren’t right for you then you have to consider if it’s really worth it. It may seem counterintuitive to walk away from a potential contract, especially when your business is still growing, but if you aren’t sure that you can manage between paydays then you could end up losing money in the long term.
While there are ways of managing your cashflow in the interim, such as invoice financing, you may not feel that your business is ready to look into new funding ventures. Don’t be afraid to accept a short term loss, for a long term win - say no.