Cashflow is king
The political capital made this week on support for small and medium sized enterprises begs a few questions.
Posted 24 October 2008
The Labour government grabbed most of the headlines with its offer to speed up government payments to SMEs to ten days. This echoed a similar idea raised by opposition leader David Cameron in The Observer last weekend, and the Conservatives went further with proposals such as allowing SMEs to defer their VAT bills for up to six months.
The premise of these ideas is valid: to support the cashflow of SMEs during the economic downturn and give them a better chance of survival. Impaired cashflow can cause insolvency in an SME even if it is a sound business.
In theory, this should help the small processors in the UK polymer industry. But, of course, even if they are in sectors where there is government purchasing, these SMEs do not always supply direct to a government department. What if their customer is the one whose bills are paid promptly by the government, will that customer be forced to pay their bills quickly too?
To properly support SMEs’ cashflow, all companies and organisations in a supply chain need to improve their payment records. Automotive companies and packaging buyers in retail groups are powerful customers of many plastics processors, who can play a big part in this issue. They must not feel tempted to use delayed invoice payments as a way of retaining cash, because they could drive suppliers to the wall.
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