Giant Killer

Giant Killer

Everybody, including senior members of the government, Chambers of Commerce, SME Federations and many SME owners believe that it is the fault of the banks that lending to SMEs is too low.

Banks are profit- making companies, just like any other trading company. They have a responsibility to their shareholders to make profits and pay dividends, which might well contribute to your pension fund. The directors have a responsibility in law not to engage in providing dodgy loans which are likely to damage the bank.

The government, and others, assess only the net lending by banks to small companies. However, that does not take into account that small business owners, in difficult economic times, will try to repay their loans instead of borrowing more. Hence the net level of borrowing becomes lower.

In many cases, the liquidity problem faced by small companies is caused by late payments, particularly by large corporations. Recent BACS research reveals that large companies owe £24bn to small companies, paying the small company 39 days over the agreed payment terms.

However, the government have provided a means to make a profit from late payments from companies, big or small that do not pay on time. The Late Payment of Commercial Debts (Interest) Act, 1988 states that a company with less than 50 employees is entitled to claim interest at 8% per annum above the prevailing Bank of England base rate on all overdue payments. That 8.5% is not a bad return on your investment!

You can claim this interest if the debtor exceeds the previously stated terms of payment. If you have not stated payment terms, the Act assumes 30 days as the terms. You can avail yourself of the Act, provided the debtor is a company, regardless of size. 

The book 'How Companies Really Grow' is available from my website at a considerable discount. The blog is all new stuff, not extracts from the book.