By Gary Turner, managing director, Xero, the online platform for small businesses and their advisors, and Fourteen Forty client

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Very often small firms do not need external investment to grow.  They need working capital.  That was one of the key messages that came out of a stakeholder and media event that we recently held to launch Xero Small Business Insights.

The point was made by entrepreneur, and one-time Dragon, Sarah Willingham, who was on our panel.

And it goes right to the heart of the productivity debate in the UK today.  Two of the key pressures we see small firms grappling with are access to finance (the right sort of finance) and late payments.

Too often these problems get conflated.  As Sarah said, many firms looking to grow should not be thinking about giving away equity to finance it.  They should be able to use the cash they should have in the business, but which is tied up in late payments.

Xero’s Small Business Insights is based on our anonymous customer data from hundreds of thousands of UK businesses. It provides a deep and regular analysis of the health of the small business economy. We will be using it to help advocate for our customers among policy makers, influencers and commentators.

The snapshot shows that on average invoices with 30-day payment terms are paid in 40 days.  We’ve looked more closely at how the UK’s largest firms, in the FTSE350, perform.  That analysis shows that for the same 30-day invoices, they typically pay in 46 days.

That’s right.  The largest firms delay payments for more than a working week longer than the national average, which is already running two working weeks late.

Perhaps in the days when invoices were run on paper and had to be physically passed between different departments for approval, before being slotted into a monthly “cheque run”, there might have been an excuse for this.  But not anymore.

Those delays create a vicious circle for growing businesses, argued another panellist at our event.  Vicky Pryce, economist and previously Director General for Economics at the Department for Business, Innovation and Skills, argued late payments do more than cause immediate cash-flow issues.

Late payments also affect the firm’s financial risk profile.  This can have an impact on their ability to borrow from banks which, themselves, also need to balance the risks they accept.

In the ten years since the Prompt Payment Code was introduced, which coincides with when Xero started in the UK, we have seen little improvement in this area.

Improving our national productivity means making it easier for individual businesses to improve their own output.  And that often boils down to getting access to finance to fund growth and to addressing the late payment epidemic which ties up working capital and stifles innovation.

It is time to redress the balance.  Small businesses are obligated to meet all sorts of official requirements, such as the move to digital taxation.  We believe that those obligations should work both ways, and the time has come that large firms should be obligated to pay on time.

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