Guest blog by Words by Lucy Patchett, Novo-K Journalist.
A recent LinkedIn survey we conducted prompted a deeper look into how organisations can go further to support and accommodate SMEs. Recent global events have caused significant business struggles including issues like lack of cash flow, resource constraints, and higher business risk from Covid infections. With such impacts hitting the economy, the business population declined by 6.5% in 2021, compared to 2020.
In our current climate, organisations need to show they are willing to go above and beyond to uphold the supply base that makes up 99.9% of UK businesses.
Our LinkedIn survey revealed that 42% procurement leaders believed short payment terms were most helpful for SME suppliers in the supply base, while 51% said all were important including short-form contracts, flexi-requirements like insurance, and payments.
Cash flow is one of the biggest restraints for SMEs, and lessons from the pandemic leave many suppliers hoping a positive precedent has been set for the future.
Kavita Cooper, founder and managing director at Novo-K Procurement Solutions, said: “Payment terms need to be fair but also SMEs need to be paid on time, it‘s a matter of survival as very few sit on a mountain of cash. Therefore, there must be a clear escalation path where this doesn’t happen.”
Andy Nielson, founder of procurement consultancy Twisted Orange and commercial director at Novo-K, commented: “SMEs typically have to fork out within 7, 14 and 30 days and yet they’re often being paid in 90 and 120 days.
“However, since the impacts of the pandemic, many larger organisations have reduced their payment terms to SMEs – some have even paid on zero days. So, I think that’s where we’ve seen a massive, positive impact. Hopefully that will not just be a one off.”
Ensuring mutual benefits
Organisations need to continue to increase their social value impact by working with a certain number of SMEs. Principally, they need to take into consideration how the project could include defined mutual benefits, in terms of innovation and product development, and rewards for innovation and sustainability within contracts.
Neilson highlighted those mutual benefits need to be clearly outlined in contracts, and that introductory bid processes being more inclusive of SMEs in the last couple of years have made positive differences. “With clients I’ve been working with, I’ve had a focus on how SMEs are involved in the Referral for Quote process – almost like a positive vetting,” he said.
Cooper added: “Corporates have to go a long way to understand what SMEs require and why. They need to re-engineer or, where possible, simplify their tender process to accommodate SMEs by basing it on risk and value. SMEs can’t afford to spend time and resources on large tenders of low value or low risk, and it isn’t an efficient use of time by the procurement teams either.”
Consulting SMEs on business and listening to advice regarding improvements or operational needs will help strengthen trust and show that companies are willing to build a long-term relationship, rather than simply a transactional one.
Nielsen advised that big organisations and SMEs foster relationships with the “willingness to take on a bit of risk in order to collaboratively achieve innovation and bring a difference to market”.
“They need to allow SMEs to advise on what benefits they can bring. By the same token, SMEs also need to appreciate the corporate challenges that the larger organisations face and reassure them around the fear of risk; it’s a two-way street,” he continued.
Building awareness of support
Sometimes it’s useful to seek extra help elsewhere – either related to finances, resources or upskilling – as recent years have posed considerable challenges such as supply chain disruptions, cyber security risks and business changes due to Brexit and the pandemic.
The UK government has recently launched two partially-funded programmes, in partnership with Cardiff University Business School and Brunel University, to increase support for SMEs: the Help to Grow Management course to upskill leadership abilities and assist SMEs in creating a strategic growth plan, and the Digital scheme to aid technology investments.
As a mentor for the management programme, Neilson highlighted: “It’s important to understand what support is available financially from governments, including programmes, and remove the perception that support is out of SMEs league money-wise.
“The programme is great for getting access to all sorts of experts, with 1:1 mentoring, a wide plethora of knowledge, and business networking. The imparting of knowledge and development of a strategic growth plan that is bespoke to their own business needs creates resilience and robustness within that particular SME,” he added.
IR35 – Reducing barriers to SMEs
While the UK government is actively boosting SMEs with programmes like Help to Grow, it could be said that it’s contradicting its efforts by stifling the market with barriers and aggravations caused by IR35.
IR35 is a tax legislation implemented in the private sector in April 2021, which aims to prevent contractors from being ‘disguised employees’ by taxing them exactly as if they were an employee. The responsibility to define IR35 status has shifted from the contractor to the business, with small firms exempt. This has resulted in tax increases and other impacts on contractors and, consequently, nine in 10 UK businesses have been forced to raise rates to attract contractors.
Neilson said: “SMEs are the lifeblood of this country and the global economy. I think we need to be able to support and nurture them better than we currently do rather than treat them like cannon fodder. While companies have shown resources being a lot more flexible, with many stretching and shrinking to suit their own needs, they need to change their working practices around IR35 because it’s an absolute killer.”