The excellent reaction to the COVID-19 pandemic given by the majority of our population is something to be proud of and shows the social conscience of our country.
The business sector has shown some excellent examples but sadly, more examples are coming to the fore under the financial pressures which the impact of the COVID-19 pandemic is creating. The Bank of England in its latest Financial Stability Report August 2020 says that our financial system has shown a drop in GDP of about £300 billion and that out of which there has been a decline in cash flow of about £200 billion. This is only half of the amount that companies will need before requiring external finance. There has been excellent support from government and there is good access to bonds, bank finance and equity but there is still more to do.
There is clearly a pattern where larger companies are beginning to withhold payment, or even seeking to renegotiate agreed contract terms to pay less to protect their cash flow, rather than seeking the financial support offered through government, banks, bonds and raising equity.
Such poor examples of irresponsible business will drive the smaller companies into much greater difficult circumstances, including administration and making further redundancies. Research tells us that responsible, ethical business practice of making fair payment makes the wheels of the economy turn faster; businesses aren’t driven to failure by late payment and supply chains don’t get gummed up either.
There are allegations and anecdotes about late payment in the region and the stress that this is causing. I have experienced it first-hand a large corporation seeking to reduce the agreed contract price simply because ‘cash is king’. I’m also aware that small businesses are contemplating how they can overcome the intransigence of larger companies not paying them. A better way is needed.
It is inevitable that a shortage of cash flow will create stress and problems but the overly simplistic step of not paying the amount on the date due will merely accelerate our race to the bottom and cause further untold problems upon an economy that will be a challenge over the next 2 to 3 years.
At NIBE we ran ‘Pay Fair’ a successful campaign in the north-east of England. It is time that we ran such a campaign once again.
Kevan Carrick – Chair, North-East Initiative on Business Ethics