Given that around £13 billion is owed to businesses by other businesses, the availability and management of trade credit has a serious impact on the financing of a significant proportion of businesses.

In fact, it is estimated that more than 80 per cent of all business-to-business sales are made on credit, allowing SMEs to ask suppliers for twice as much short-term credit as they obtain from banks, demonstrating its importance to the sector.

With SMEs in the UK typically owe their suppliers an amount equal to a fifth of their total assets, it is clear that large organisations can play a major role in supporting smaller suppliers by extending credit where possible. In addition, alterations and simplifications to procurement processes to make contracts more accessible to small businesses would also generate business and cash flow for them, thus reducing reliance on bank lending.

However, trade credit can also work negatively for SMEs in the form of late payment, or payment outside of agreed credit terms, which is seen as one of the biggest problems faced by the SME sector in the UK.

According to the latest research, nearly half of businesses have customers who don’t pay on time. In fact, a study from the Federation of Small Businesses suggests that as many as 50,000 insolvencies every year is a as a result of late payment, with a cost to the UK economy of around £2.5 billion.

This is particularly the case for those microbusinesses that make up the vast majority of firms in Wales and that can easily get into serious financial difficulties if their customers refuse to pay them on time. It is not only the amount of money owed but also the uncertainty of the payment which, coupled with the disproportionate amount of management time involved in chasing payments, can put pressure on a small firm’s relationship with their own bankers.

Therefore, given that the lack of availability of trade credit is an issue that leads to many smaller businesses seeking short term funding for working capital from banks, could the Welsh Government actually do something to change this situation?

One of the suggestions that I made during my review of access to finance for the Welsh Government is that it should explore how it could use its power as the biggest purchaser in Wales to encourage its own large suppliers to adopt supply chain finance to support their suppliers although as far as I am aware, this had not happened to date.

More importantly, it could set an example for late payment by ensuring that all contractors operating within the public sector in Wales have to pay their suppliers within a maximum 30-day period (and ensuring that it adheres to such a policy itself).

With over £6 billion being procured annually via the public sector, this could have a major effect on the cashflow of a significant number of smaller businesses, especially if Welsh Government (as well as other public bodies such as local authorities and the NHS) could also build in such conditions into all the contracts that it currently manages.

Certainly, with an estimated £650 million owed to Welsh SMEs, such a small and simple change in policy by public bodies in Wales could transform the landscape for our business community and help the competitiveness of the Welsh economy in a far more effective way than many would expect.