Liz Mcareavey: Paying on time vital for Scottish economy

Making sure companies are paid on time is vital if the Scottish economy is to prosper, says Liz Mcareavey.

The Summer solstice not only brings the promise of warmer weather but also a threat to business finances, as delays in payments can be triggered by the holiday period.

Cashflow is critical to all businesses. This is particularly true for small and medium sized enterprises (SMEs) who don’t benefit from the financial security that comes with being a large, national or international company; many in fact are living a hand to mouth existence.

According to Lloyds Bank’s most recent ‘Business in Britain’ report, SMEs cross the UK are owed nearly £500 billion in outstanding invoices. While it may often be more convenient for larger companies to slow the payment process, this has a massive knock-on effect for smaller firms and the supply chain. Finding a happy medium that works for both debtor and creditors, and ultimately the economy in the long term, is key.

Considered the ‘engine room’ of our economic recovery, we must protect SMEs’ ability to pay staff and suppliers. Last year saw a significant rise in SMEs, particularly unregistered businesses such as sole traders. Late payments are a huge put-off for aspiring business owners and avoiding this growing reputation is key to securing continued growth.

In Scotland, there are approximately 360,000 SMEs accounting for 99.4 per cent of private sector companies and 1.2 million jobs, with Edinburgh seeing the greatest increase of any other Scottish city. Their bankruptcy as a result of slow or late payments would have a massive impact on the economy.

The uncertainty that has come with the Brexit result will also have a financial impact on SMEs, particularly exporters. The construction sector is expected to face significant challenges, especially due to its unique payment structure. In an industry where payment terms of up to 1000 days are not unheard of, late payments can create huge risks to a company’s financial security. With construction representing the second highest increase in private sector firms last year, more needs to be done to maintain this industry growth and support the continued recovery.

Customers need to be responsible and support growth across the supply chain by paying on time and new legislations to drive attitude and behaviour change may be necessary to achieve this. Business leaders more than ever before also need to be vigilant in securing payment and paying staff on time.

Retaining a talented workforce and the firms’ investment in them, has a huge impact on its ability to grow. While wages are often the biggest cost to a business, it is, in many respects, the most important cost to meet on time. No one can be expected to work for a company that doesn’t pay them.

Businesses throughout the supply chain are responsible for making payments on time to allow for a smooth running financial system, and enable economic growth.

• Liz Mcareavey is acting chief executive of Edinburgh Chamber of Commerce