In a move that has won the fulsome backing of the Federation of Small Businesses (FSB), Labour leader Jeremy Corbyn has proposed steps to combat the late payment culture among corporates that so often leaves their SME suppliers in dire financial straits.

Among Corbyn’s plans are measures to bar late-paying large firms from securing public contracts, and to force taxpayer-paid big businesses to pass on prompt-payment requirements down the supply chain.

FSB national chair Mike Cherry said: “We know from our research that around 50,000 small firms a year go bust as a result of unfair and lengthy delays in big-business customers paying what they owe. Others often have to take out loans to cover the gap. These poor practices and wider supply-chain bullying have to stop.”

Corbyn’s proposals, he noted, “are important, as we build a cross-party consensus for further action … We believe [the government] must set an example, with prompt payment practice disseminated throughout the supply chain of the £230 billion public procurement programme. Larger firms should be helping their smaller counterparts – not paying them late.”

However, there’s a significant gap between plans and implementation – and on their current poll showings, Labour are a significant distance from winning power. So in the absence of tangible, concrete regulatory initiatives in the here and now, what can SME leaders do themselves to tackle the late-payments scourge? What leadership-based skills and tactics can they deploy to encourage their corporate customers to move those all-important transactions along?

“We know that lack of marketing information and financial difficulties are the main contributors to the demise, or lack of success, of small firms,” says The Institute of Leadership & Management's head of research, policy and standards Kate Cooper. “Often, the owners of small firms are hit with accusations of poor financial planning, when in fact non-paying corporates – as Corbyn has rightly pointed out – are contributing to this malaise.

“In terms of how SME leaders should deal with this problem, I recommend a shift of perspective. You’re not providing a service to a nameless, faceless corporation – you’re dealing with the people who work there. So, make those relationships personal. Convey to your corporate customers that prompt payment will ensure that you are more likely to push the boat out next time, and the next, and the next, because you will have the resources. Make every effort to understand the procurement process you’re part of. Ask the finance contacts at your corporate clients, ‘What do I need to do for you to expedite my invoices?’”

Cooper adds: “If the corporate has, say, a 90-day payment window, then offer a discount in exchange for the payment to be made sooner. Even a small percentage could be enough to sway the customer. It will take some detective work to make friends in the finance department and understand how their payment runs operate. That may be time consuming, but it’s a real sign that you’re investing in that relationship going forward.

“Also, it should impress upon the client the value that flows from prompt payment: in the end, those transactions will enable you to offer competitive prices. That’s perhaps a more positive approach to take than telling them that if you’re spending too much time chasing invoices, you’re not going to be able to focus on the work – you should be delivering that anyway. Develop healthy, cordial relationships with those prime contacts on your customers’ side, and understand that there are no faceless corporations who are blocking your payments. There are simply people who you can talk to.”

For further understanding of how people interact, check out this learning item from the Institute