A Jersey businessman is urging firms to adopt a prompt payment system when dealing with suppliers to help reduce problems caused by the credit crunch.
The initiative is a voluntary code calling on signatories to pay suppliers on time and not change agreed terms.
David Warr, who runs a tea and coffee merchants in Jersey, fears that large firms taking extended credit could force small companies out of business.
The voluntary system has already been adopted in the UK.
Cash flow
Mr Warr said that concern has arisen in the current economic climate because businesses often give customers eight weeks to pay for their services when they themselves, however, have only four weeks to pay back suppliers.
This in turn creates a temporary funding flow shortfall which needs to bridged and is often financed through banking overdraft facilities.
"If banks stop extending credit many business customers will have to start paying much more on time and if they do not give prompt payment they put the business in jeopardy"
However, Mr Warr said that lots of banks are restricting overdraft facilities so companies which give extended credit terms do not have the cash available to pay back their suppliers on time.
As a result, some suppliers may halt supplies which means that businesses which rely on them can no longer operate and go bust.
"If banks stop extending credit many business customers will have to start paying much more on time and if they do not give prompt payment they put the business in jeopardy," Mr Warr added.
"This idea of trying to get people to sign up to some kind of prompt payment code is to make them feel obliged to pay businesses on time, particularly small businesses."
According to Mr Warr, Jersey's Small Business Forum is now in discussions with Economic Development Department to get the States of Jersey to look at its own payment system so they can be a good example to other businesses on the island.
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