The Journal has launched a new campaign to tackle the problem of late payments to small and medium-sized businesses in the region.
According to the CBI, £30bn is owed to UK firms, many of them SMEs that have carried out work or supplied products to larger companies or public bodies.
In extreme cases, the pressure placed on such businesses’ finances can be so extreme it can force the firms into bankruptcy.
A ‘trickle down’ effect can also occur in which the smaller businesses can, in turn, struggle to pay their own suppliers.
At Newcastle University Business School yesterday, The Journal launched its Pay Fair campaign, calling on regional firms to adopt a fair and ethical approach towards their supply chains while promoting a culture of responsible business.
We are also asking companies of all sizes to join up to the North East Institute of Business Ethics (NIBE) and support the organisation’s Business Ethics Pledge.
NIBE, which is now being supported in a partnership with Newcastle University, was established in May 2013 as an independent regional resource that aims to become a focal point for good business behaviour.
Those signing up to the pledge agree to join with others to discuss the role and value of business ethics in society and to work with each other to transform their working environments into places where ethics and community involvement are part of the everyday activity.
Speaking at the launch, Professor David Campbell from the Business School said: “Prompt payment is an important issue for so many business because cashflow is so important.
“Large organisations are run by people who can sometimes be quite clever. They know they have buying power and that they can exercise that power over their suppliers.
“Typically a contract will involve 30 day terms and typically they will use that power to not pay within 30 days. If firms do not have enough cash, they either go bust of they go to the bank to ask to borrow more. The bank might say no and if it does, that’s the end of it.
“This is not just an academic issue - it really matters for businesses.”
He pointed out that in the UK, the average payment came 15 days late and that thousands of firms went bust each year because of late payments. Public bodies, he added, were among the worst offenders.
Journal editor Brian Aitken said: “This is not a campaign aimed at big business but there is no doubt that profitable smaller companies can come under threat when cashflow is an issue - and this region has proportionately more smaller businesses than any other.
“A national prompt payment code was set up in 2008 and now has more than 1,000 signatories - but the issue remains a serious one. So today, we are calling on the region’s business to join the North East Institute of Business Ethics to demonstrate their support for Pay Fair.”
Ted Salmon, regional chairman of the Federation of Small Businesses, said: “Late payments are still a massive issue a number of our members across the North East. On average, they are owed something in the region of £40,000 and are waiting eight working weeks to get paid.
“It also costs in the region of around £100m a year for small business to chase up payments. Therefore, if more companies paid on time, it would really help the North East economy.”
For more information see http://www.nibe.org.uk/