New research by the Federation of Small Businesses has revealed ‘alarming’ levels of unfair dealing.
Two weeks after the Premier Foods ‘pay to stay’ scandal, the FSB says 17 per cent of 2,500 members surveyed said they had faced ‘supply chain bullying’ in one form or another in the past two years.
It is calling for a toughening up of the Prompt Payment Code – a voluntary scheme – as well as fresh measures to stamp out the worst examples of bad practice like retrospective discounting and ‘pay to stay’.
The FSB wants 60-day payment terms set as an absolute maximum for any business signed up to the Prompt Payment Code.
Premier Foods, makers of Mr Kipling and Oxo, has said it will no longer request upfront payments into the business from suppliers.
Gordon Millward, FSB regional chairman, said: “The sense I get from talking to our members is that small businesses are fast approaching breaking point.
“They are no longer prepared to put up with these sharp practices. Brands that think they can continue to squeeze their suppliers with impunity may get a nasty shock when what they are doing comes to the attention of consumers.”
The FSB has listed the five worst practices:
n Flat fees – ‘pay to stay’.
It is often indicated that non-payment will result in de-listing.
n Excessively long payment terms – ‘pay you later’
In 2011 the EU issued a directive requiring all businesses to pay suppliers within 60 days, or face interest payments on money owed.
However, the UK implementation of the directive allows businesses to agree longer terms “provided it is not unfair to the creditor”.
This has led to many companies insisting on payment terms of 90 or even 120 days. In effect, this becomes an interest free loan from firms in the supply chain to large companies with excessive payment terms.
n Exceeding payment agreements – ‘late payment’
n Discounts for prompt payment – ‘one for you, one for us’
Prompt payment discounts are arbitrary discounts big firms give themselves for paying early or even just on time.
n Retrospective discounting – ‘balance sheet bonuses’
Some firms seek to apply retrospective discounts to outstanding money owed to a supplier.