One in five small businesses has faced “supply chain bullying” in the last two years, a new survey has revealed.
The poll of Federation of Small Businesses members, which came in the light of the Premier Foods “pay to stay” scandal, comes as the The Journal is pushing for firms in the region to commit to more ethical payment practices through our Pay Fair campaign.
The Federation surveyed 2,500 businesses and says it has found a serious deterioration in payment practices, with five problems in particular creating resent among small businesses.
- flat fees or ‘pay to stay’ - charges which are levied on suppliers either as a requirement to be on a supplier list, or as an investment into hypothetical future opportunities. It is often indicated that non-payment will result in de-listing.
- excessively long payment terms, with many companies insisting on 90 or even 120 day payment terms, in effect benefitting from interest-free loans from firms in their supply chain.
- many companies, the FSB says, routinely exceed agreed terms or change terms retrospectively to allow them to miss payment dates. Also thought to be common is the practice of extending payment dates if money is owed on, or close to, the end of a financial reporting date, thus smoothing big companies’ balance sheets.
- some big firms are giving themselves arbitrary, automatic discounts for paying early or just on time.
- some companies seek to apply retrospective discounts to outstanding money owed to a suppliers, effectively changing the terms of the contract. Methods used to extract these discounts vary, but the FSB says they include threats of de-listing and withholding payment.
Through the Pay Fair campaign, The Journal is encouraging North East companies of all sizes to take a responsible and ethical approach to paying firms within their supply chain.
It is asking them to sign the Business Ethics Pledge created by the North East Institute of Business Ethics, thereby agreeing to join with others to discuss the value of business ethics and to work with each other to transform their working environments for the better.
The FSB is likewise calling for a toughening up of the Prompt Payment Code and fresh measures to stamp out the worst examples of bad practice.
North East regional chairman Ted Salmon said: “When the public think of their favourite brands, they are unlikely to connect them with the sort of immoral payment practices which are becoming all too common across an increasing number of industries.
“However, it is clear that whenever these examples come to light, the public shares the same sense of moral outrage as the small firms that have to put up with them on a daily basis.
“The Government has indicated that they are prepared to do more to improve the culture of payment practices in the UK and they are right to do so. The sense I get from talking to our members is that small businesses are fast approaching the 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 their consumers.”
To sign the Business Ethics pledge, visit http://www.nibe.org.uk/