Lessons from Carillion- the importance of rapidly paying suppliers

Last month’s collapse of the facilities management and construction services firm Carillion has drawn public attention to the ongoing difficulties many SMEs face due to late payments for completed work.

The scale of the Carillion crisis is unprecedented with an estimated £1bn still owed to more than 30,000 business at the time of Carillon’s collapse. Yet many SMEs will be unsurprised that the current system encouraged so many UK businesses to be placed at such risk, despite few options for recourse when disaster struck.

SMEs currently face difficult choices when working with larger corporate clients. On the one hand, large clients can often provide sustained and lucrative work that can open essential new doors for a growing smaller firm.  Yet the underlying power imbalance between the two firms can leave SMEs unfairly vulnerable to exploitation.

This is particularly true when it comes to getting paid on time. The collapse of Carillion exposed the plight of thousands of SMEs, many of which had been seeking payment for months and were denied the tools needed to successfully challenge Carillion on failing to make payments owed.

This disregard for paying their suppliers can seem baffling considering that prompt payment for completed work remains a fundamental expectation in our society. Yet Carillion failing to meet its commitments did not garner enough attention in the wider community because of a culture of acceptance among some firms for this very damaging practice.

Consistent cashflow is essential for the 5 million UK SMEs who are the lifeblood of the UK’s economy and these businesses should not have to sacrifice further time and money in chasing down payments already owed to them.

The extent of this situation was recently underscored in a survey of more than 500 SMEs by Dun & Bradstreet, which revealed that late payments were jeopardising the future for 58 per cent of the businesses surveyed.

The research also showed that on average SMEs were owed £63,881 in late payments, with 11 per cent owed between £100,000 and £250,000. This withholding of payments brings about cash flow difficulties for 35 per cent, delayed payments to other suppliers for 29 per cent and reduced profit performance for 24 per cent.

In the wake of the Carillion crisis, The British Business Bank announced it would provide an additional £100m of lending to affected small businesses and other banks have also pledged to offer short-term support during this challenging period.

This support was desperately needed by the thousands of SMEs and their employees whose livelihoods have been placed at serious risk by Carillon’s actions. Yet is it enough?  While any assistance is welcome, UK SMEs deserve a solution that truly addresses the vulnerabilities in the system and protects SMEs from unnecessary risk as they drive the country’s economy.

A report this month by the government on its consultation with UK SMEs on ‘Late Payment and ‘Grossly Unfair’ terms and practices’ brought some promising news. The government’s report acknowledged the difficulties that many UK SMEs face in taking disputes regarding late payments, and other violations in contractual terms and practices, to court.  It recommended that this process become more efficient and accessible through increasing the power that representative bodies have to represent SMEs during such disputes.

In Carillion’s case, such rules may have given unpaid SMEs the power to collectively force the issue and publicly reveal the extent of Carillon’s financial problems earlier. Ultimately, however, the biggest driver of change in late payments to SMEs needs to come from a top-down adaptation in culture regarding the importance of paying suppliers as quickly as possible.

Akoni helps businesses make the most of their cash. Register free at panel.akonihub.com and follow us on Twitter

 

 

A Solution for SMEs to Optimise Cash Holdings: Akoni in an Interview on Fintech Focus TV

Felicia Meyerowitz Singh, CEO & Co-Founder of Akoni, speaks to the Harrington Star about the solutions that Akoni brings to SMEs and small corporates to make managing their cash easier and more beneficial. One of the many pain points Felicia addresses is the huge amount of time that such organisations, who aren’t big enough to qualify for banking corporate treasury functions, must spend managing their cash. The interview discusses the use of AI and data optimisation as Akoni seeks to help busy SMEs maximise their cash with access to new tools and better interest rates. Watch the full interview now!

Akoni helps businesses make the most of their cash. Register free at panel.akonihub.com and follow us on Twitter

Auto enrolment for employee pensions – SME checklist for compliance

The UK population is facing a major savings crisis – and it’s not confined to the millennial population. In fact, the so-called ‘generation debt’ demographic – those aged 18-25 – are active savers and putting up to 10% of their earnings aside to plan for their future.  74% of those recently surveyed by one bank claimed to invest regularly, more so than this country’s older generation.

This is an impressive figure and dispels the stereotype of the over-spending millennial.  But it’s still not enough for old age. We are living longer – and our money pot needs to accommodate this reality.

Retirees are feeling the pinch, with one in five people in their 50s and 60s unable to set aside enough money after bills and other living expenses are paid.  Only 43 per cent are occasional savers according to a recent report carried out by Aviva.

In further research commissioned by Age UK, half the UK’s workforce between 40 to 64 years of age  – eight million people – expect to have to work until their late-60s.

Government has taken action to try and reverse this trend. It wants to encourage the population to save more and to legislate businesses to provide pension schemes.

Hence the enactment of statutory staging dates – the period whereby employers must enrol staff into a pension. Staging began in 2012 with larger employers followed by smaller firms. February 1st 2018 marked the last staging date.  From now on, all new employers – including SMEs- must comply with automatic pension enrolment on the day their first member of staff starts work.

2% of ‘qualifying earnings’ has to be paid into a scheme for each employee, with at least 1% of this coming from the employer.  In April 2018 the contribution rate will rise to 5% of qualifying earnings, with a minimum of 2% from the employer.  The following year it will increase to 8% with a minimum of 3% from the employer.

All employers must enrol workers into a workplace pension who:

  • are not already in a qualifying pension scheme
  • are aged 22 or over
  • are under State Pension age
  • earn more than £10,000 a year

Most SMEs will probably turn to accountancy firms to manage the administrative side of the auto enrolment.

For SMEs that want to set up the pension themselves, the first step is to visit the workplace pension sector of the Directgov website to learn more about their responsibilities.

The pension regulator also has important information online that SMEs should consult – including the master trust assurance list of schemes that meet government approval.  The register includes the National Employment Saving’s Trust (NEST), a not-for-profit, trust-based, defined contribution pension scheme that was created to support automatic enrolment and to ensure UK employers have access to a suitable pension scheme. NEST is easy to use and provides an affordable way for employees to save.

The UK government is right to enact this pension reform – and businesses must comply or face stiff penalties that can hurt their bottom line and impact the wellbeing of employees.

Millions of people are not saving enough for retirement – and as life expectancy increases, savings in pensions are decreasing. Auto enrolment offers a hassle-free way for employees to reverse this worrying trend and for all companies – including SMEs – to play an active role in creating a better financial future for everyone.

Akoni helps businesses make the most of their cash. Register free at panel.akonihub.com and follow us on Twitter

Tax Returns – Did you file on time

January 31st was the deadline to file your tax return in the UK.

The good news is that each year more people are actually submitting the returns on time Last year a record was set – nearly 11 million people got their annual tax returns by midnight on January 31, with nearly 33,000 filing online just an hour before according to the UK’s tax authority. 

But for every person that made the deadline, there’s plenty of others that didn’t.

It’s estimated that one in 14 tax payers didn’t file on time last year. While it’s too early to assess what the numbers were like this year, what is certain is that submitting a late tax return is a costly affair – especially for small businesses.

An automatic fine of £100 pounds is generated by computer after January 31st – and the later that people wait, the greater that number increases. If you’re three months late, there’s a £10 fine for each following day up to a 90 maximum of £900. Six months later or more and you could be asked to pay up to 100% of the tax due instead as well as any tax owed, which is doubling the payment you were originally asked to pay.

Paying your tax return on time is probably what most SMEs aim for but maybe it’s not procrastination that is the cause of the delay, but the actual process of filing the return in the first place.

Going online and navigating through the government portal can be confusing and frustrating. There are also requirements to provide a host of information and ID, which takes time as well. Add to the mix the need to supply a Unique Transaction Reference (UTR) and suddenly you find yourself running out of time as you scramble to locate where and what this number is and why it matters so much.

Another serious issue is the struggle that most SMEs face: late client invoices. If small businesses are struggling each month to get paid – how will they file their tax return on time?

The Federation of Small Businesses asked government for some mercy, complaining that people have faced an unusually difficult year, which is impacting their ability to file their return.

HMRC estimates that nearly 11 million people have to complete a tax return because they are self-employed, earn more than £100,000 or have a second income.

For those firms that filed on time this year – a big congratulations are in order. For the millions that have missed the deadline – here are a few tricks to prepare for the next return:

First, be organised- keep paperwork sorted throughout the year so everything you need is in order and you’re not panicking the day before the deadline.

Second, keep track of all expenses and include all the information required. Double check that forms are fully completed and include all earnings. Many tax returns are rejected by HMRC due to errors and mistakes so find the time to cross check all paperwork before you file the return.

Third, use the plethora of FinTech software that’s readily available and can simplify processes. They include online platforms such as the Which? online tax calculator that helps businesses submit tax returns directly to HMRC with little hassle.

If all of this sounds too daunting, then there’s always the final option and that’s to seek out an accountant.  That can be a costly affair but so too is the whole business of late tax returns.

Akoni helps businesses make the most of their cash. Register free at panel.akonihub.com and follow us on Twitter

 

Time is Money

A quick google search tells me that the phrase ‘Time is Money’ is credited to Benjamin Franklin, one of the Founding Fathers of the USA, who of course now appears on the $100 bill. He first used the phrase in his 1748 essay ‘Advice to a Young Tradesman’.

Nowadays it seems fairly obvious that time is money… in our daily working lives we’re encouraged to think like that – how much did this advertising campaign cost? What’s the return on investment? What is the transactional cost of administering x, y and z?

Over the past few months I’ve spoken to a number of charities about how they run their operations and finance, and when introducing Akoni we’ve talked about how they manage their cash. The common response I’ve had is ‘our cash sits in a bank, we don’t get much (if any) interest; the hassle and transactional cost of managing cash isn’t worth the returns’.

Benjamin Franklin would agree with this logic.

But time is variable… if you can reduce the time taken to do something, then it might be time for a different approach. Time taken to manage cash is one of the problems that Akoni solves.

Our innovative platform means you can move cash to higher yielding accounts without hassle, working on both sides of the time and money equation. The transactional cost is taken away and your returns are increased. So with not much time you could make more money.

It is innovation like this that changes the way charities (and businesses) work… challenging assumptions that things (like managing cash deposits) take too long or aren’t worth doing. Akoni are helping charities to innovate and access cash returns they’re missing out on.

As one of the great innovators of the 18th century, we think Benjamin Franklin would agree.

Please feel free to get in touch with me at Stephen.harvey@akonihub.com if you’d like to find out how Akoni can help your nonprofit to reduce the time and hassle it takes to maximise your cash.

Akoni helps businesses make the most of their cash. Register free at panel.akonihub.com and follow us on Twitter