Cashflow between these businesses is essential for the health of the economy, with late payments and other issues hindering growth and impacting on employees in more extreme cases.
These businesses will be vitally important to the UK’s continued growth. As the Government explores economic interventions to help SMEs compete, Emily Cooper and Nicola Tilley, the founders of logistics recruitment company More Driver Solutions (MDS), share the measures they have implemented mitigate these cash flow issues, which they believe could benefit businesses in similar positions; and suggest initiatives the Government could implement to help remedy these issues.
2024 was an eventful year for business, with inflation, trade wars and a general election affecting businesses in a myriad of ways. For MDS, it was a year of learning hard lessons. While a successful year overall, one event permanently changed an aspect of how it does business and relates to its clients.
MDS faced something that is experienced by many businesses: a major client went out of business while owing significant amounts of money. Emily said: “While there were signs that issues were arising, we had seen the business recover from difficult positions before and were hopeful they could survive. Unfortunately, it went under, affecting a large portion of the local logistics sector.”
Following this, MDS raised its standards for providing credit facilities and implemented measures to protect the business’s cashflow. As part of a wider review of credit processes, MDS performs extensive research on the busi- nesses to which it provides credit and takes a much more comprehensive look at the kind of credit facility it is to provide, including considering more niche options that may not have been considered before.
Nicola said: “Starting with the credit limit, we work directly with a business’s Financial Director to establish the terms of the facility in relation to the kind and amount of work they would like us to provide, their credit history, and other financial factors. During these conversations, it’s important to relate the amount of credit being provided to the amount of work that can be performed for that amount. This allows for all aspects of the agreement to be discussed more transparently.”
The business’s credit history will then form the pay- ment terms MDS is willing to provide, which can then be amended as payment history is established. By partnering with Creditsafe, a credit reporting company, MDS is able to make robust evaluations of a business’s credit history and make decisions accordingly. If a business has a positive credit history, then MDS may offer more lenient terms. Conversely, if a business is unknown or has a questionable credit history, MDS may ask it to pay up front and not offer a credit facility at all initially.
Emily added: “We are much more proactive with our management of existing facilities, actively reviewing those we provide over time and changing them based on the business’s behaviour, considering things like if they’re paying on time and how difficult it is to chase them for payment. As a final backstop, we have also procured credit insurance, providing a last layer of protection against any losses that may occur from non-payment.”
While MDS has been able to adjust its practices to protect itself from these situations, other businesses within the sector – especially smaller businesses – may not be able to protect themselves in the same way. Larger businesses are frequently able to dictate their own payment terms, with smaller businesses often required to work with MDS for significant percentages of their overall trade. Small businesses then need to fund the provision of services without being paid for up to 90 days. A small business could increase its prices to offset this risk, but the larger business will also often dictate the amount paid. Furthermore, if the larger business fails to pay on time, then the smaller business can be put in a very precarious situation that affects everyone’s livelihood.
Nicola explained MDS’s stance on the issue: “To mitigate this power imbalance, we believe that there should be universal payment terms across all business transactions. The Government is currently exploring ways of implementing a universal 30-day payment term across all businesses and industries, helping to improve cash flow across the economy. A Government-backed late payment fee or levy would be an excellent start, and More Driver Solutions is calling for businesses to be fully consulted on any new measures the Government intends to implement to ensure their applicability to the issues being faced.”
Find more information about More Driver Solutions visit their website
