If you're a small-business owner and you've never heard of the Supply Chain Finance Scheme, announced today, sit down and put anything breakable well out of reach, because you're going to want to smash something pretty soon.
The SCFS is one of those initiatives that you hear about, think "how the hell did they come up with that?", and then realise it was a government idea.
In short, it means big businesses won't pay you in real money any more - they'll pay you in promissory notes instead, like this is all just one big round of Game of Life, only you get to pay the interest on what they owe you instead of them paying it.
To put it into the terms used by 10 Downing Street, the scheme "is an innovative way for large companies to help their supply chain access credit, improve cashflow and at a much lower cost", which isn't really grammatically correct, but wouldn't make sense even if it was.
In real terms, it seems to be free rein for big businesses to withhold payment on invoices because, after all, you can borrow against what you're owed anyway - a government-sanctioned enforcement of invoice financing on small companies that, frankly, might not want to borrow money that they're already owed.
At Safe Collections we pride ourselves on our work with small businesses, who are often the ones most in need of somebody to fight their corner - so we're desperate to raise awareness of how unfair the SCFS is, and how costly it could be for those small firms with the largest numbers of late-paying clients.
Try It Yourself
You don't have to be a big business to try this approach - if it works for them, it'll probably work for the rest of us, right?
We're planning on sending this letter to the bank next time a mortgage payment is due. As far as we can tell, it follows the same concepts as the SCFS, so we can't imagine they'll have a problem with it...
Dear The Bank,
I've decided not to pay this month's mortgage payment when you ask for it - I'll pay it later instead. Don't worry, I'll write you a note to say I still owe you the money. You can probably get someone to lend you some money based on that, though you might have to pay a bit of interest.
Mr S.M.E. Owner.
Remember, Cameron calls this scheme "a win-win" with the potential to "secure finance and support cashflow" and "protect thousands of jobs" - surely the banks can't object to anything like that?
Indeed, how could any of us reasonably expect to be paid on time, in accordance with the terms agreed upfront, for the work we do, when not getting paid at all is apparently so good for the economy as a whole?
The Doctor Is In
The beleaguered NHS might not seem like the obvious place to impose interest-accruing borrowing on amounts that are legitimately owed, but community pharmacies are still the first to be
hit - er, we mean helped - by the SCFS.
Due to the lumbering processing systems in place for counting up the number of prescriptions filled by each pharmacy, it can currently take eight weeks for them to receive full payment, with about 80% of the full amount usually paid within four weeks.
Now they are being told to borrow the money they are owed from a bank within seven days, and pay it back with interest three weeks later when it finally shows up in their account.
It's a frankly ludicrous way of operating - borrowing money that's yours, because the organisation that owes it to you won't pay up, and then paying interest on top for the privilege.
A Different Way
There is a different way, of course - simply making sure you do everything you can to get paid on time.
At Safe Collections, we regularly pursue late paying clients, and we can make sure you receive statutory interest on top of whatever you're owed (as opposed to paying interest on the outstanding amount).
It's a much better option than simply waiting for the money to show up, and a much, much better option than taking out a short-term loan until the invoice clears.
We're frankly shocked and appalled at the SCFS and the way it, yet again, places the financial and admin burden on small businesses - and we're raring to go when it comes to putting that burden back on the non-paying big businesses, where it belongs.
Image by flickr user The Magic Tuba Pixie is licensed under CC BY 2.0