In the consumer world, if we need a product or service, we pay for that product or service and it is then delivered – in other words, we pay a fee and receive something in return. It’s a simple concept that seems so natural to us that pointing it out seems nonsensical.

However, this same theory is not applied in the business world and every supplier is expected to provide a service or product before receiving payment. Businesses are treated as ‘mini banks’ almost and all business transactions are carried out on credit. This structure works well if you have trusted businesses that you deal with, and payment terms that are reasonable. However, it is increasingly commonplace that businesses have long payment terms, coupled with late payments.

Recent research that we conducted with MasterCard found that over half (57%) of international businesses surveyed, admit to having actively delayed paying their suppliers in the past 12 months. The findings underscore a late payment culture - which three out of four businesses now consider normal practice - that is hampering small and medium-sized enterprises (SMEs) in particular. Late payments have a ripple effect that spreads across the business ecosystem, impacting cash flow as each tries to mitigate the impact of delayed payments. Inevitably one late payment leads to another and small businesses, as those with the least financial ‘buffer’, are often those who suffer most.

The late payment topic has continued to dominate the minds’ of those in the accounts department, as well as our headlines. According to BACS, the payments body, in September 2007 the amount outstanding to the UK’s SMEs totalled £18bn. By this year they had risen to £46bn for all UK companies, with smaller companies owed the bulk of this, at £39.4bn.

Alongside this, the hangover of the economic crisis has seen payment terms extend further and not come back down again alongside the prevailing growth. With some payment terms as long as 100 days, it’s no wonder there’s countless businesses struggling with cash flow. A recent report by Albion Ventures found that one in five SMEs cited cash flow as a major challenge to growth.

The squeeze on accounts departments is obvious and as a result, businesses should be taking a more mature approach to supplier risk, in order to ensure the protection of their own business. Efficiencies and cost reductions are being pushed, but push those cost reductions too far, and you increase the supplier risk and potentially compromise the service you’ll receive. Businesses are reliant on providing a competitive offering and are therefore likely to abide to unreasonable terms. In today’s world, global businesses have a very complex network of partners and supplier, but they need to be agile to these partners and suppliers, without risking their own finances.

New payment initiatives such as Basware Pay are offering this agility through giving buyers the ability to better manage their cash flow, whilst suppliers get paid sooner. Business transactions will always be carried out on credit – this is not a notion that is set to change anytime soon. However, if businesses can find way’s to make this manageable through initiatives such as Basware Pay, we will begin to see the lights fading on the topic of late payments and suppliers being squeezed. It won’t happen overnight, but the more businesses that agree to e-payment initiatives, the more successful supplier relationships we’ll see.