Supply chain · 23 March 2017

Payments scandal: It’s not late payment, it’s unfair payment terms to start with

Late payments
Research has predicted that ending late payments would give average profit growth of 2.6 per cent to small firms

As Jeremy Corbyn outlines his plans to tackle Britain’s small company payments scandal, Business Advice reveals it is actually excessive payment terms that are causing the real problems.

Corbyn, the Labour leader, wants to impose a payment cap on big business supplier payments should the party come into power. It’s the latest development in an ongoing debate involving the payment of small suppliers by bigger businesses.

However, far from it being an issue of late payments which could be sorted by the appointment of a government commissioner, we can reveal the true nature of the underlying problem.

Statistics drawn together by Business Advice have shown that eight in ten micro business owners do not think the commissioner will have any impact, while a third of respondents claimed to have between £20,000 to £50,000 in unpaid invoices.

Our research also uncovered the growing issue of unfair payment terms, thrust into the spotlight recently by the news that Asda is extending invoice waiting times by 50 per cent – meaning suppliers face a 90-day wait before receiving payment.

One small supplier, who wishes to remain anonymous, got in touch with Business Advice to explain that small business owners are often “bullied” into long payment terms with larger companies, which can impose invoice times of up to 90 days.

In some cases, the agreements include “prompt payment discounts” which can further undercut invoice revenue.

The business owner wrote to small business minister Margot James and the Federation of Small Businesses (FSB) to highlight the ongoing plight of small suppliers.

Dear minister,

The issue is that large companies bully small companies into long payment terms, and then also impose prompt payment discounts. 

So, one of our customers pays us on 75-day terms – which works out at an average of 90 days before we see the money – and deducts 2.5 per cent for their “prompt” payment.

The result is that we have to fund their business. I have to borrow money in order to trade with them. Should big business treat small business in this way? They can buy our product, sell it and get paid for it and then pay us.  

If the government is serious about supporting small businesses, this is an area in which you could make a real difference. 

So this is not about late payments. I know that late payments remain an issue for many businesses despite the relevant legislation, but my customers pay me on time. And the experience of most of my network of business contacts is that most of the big companies do now pay small companies on time. The issue is that they have pushed that “on time” back as far as they can.

So this is about forcing big companies to pay small companies on short payment terms.

This issue escapes most commentators. Small businesses cannot complain too loudly as we depend too heavily on these customers, but I know there are many people who are gravely affected by this issue.

As the terms are agreed, suppliers are given next to no power to challenge long payments, and poor practices remain within the law.

The small business owner received the following response from James’ ministerial office.

 

Unfair payment terms

Unfair payment terms
The letter outlines the government’s intentions to depend on the late payment tsar for all supply chain disputes

While the response outlines the need for 30-day payment terms, it falls short in acknowledging the wider picture. The government is no doubt committed to ending “late” payments. But, with regards to unreasonable terms of contract, it appears big business still calls the shots.

If your business is suffering at the hand of unfair payment terms, or you’ve been undercut by “prompt payment” discounts, contact us confidentially at editors@businessadvice.co.uk and help us fight the corner of Britain’s small suppliers.

Sign up to our newsletter to get the latest from Business Advice.


 
TAGS:

ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

Q&A

If you’ve found the article above useful, but have a more detailed and bespoke question, then please feel free to submit a query to our expert. We at Business Advice will get in contact with them on your behalf and arrange for a personalised response. These questions and answers will then be collated on the site for any other readers who have similar queries.

Ask a question

From the top