Small firms ‘at breaking point’ over unfair payment terms, says FSB

Jeanette Thurtle of the Federation of Small Businesses.

Jeanette Thurtle of the Federation of Small Businesses.

Nearly one out of every five small firms, including many in East Anglia, have suffered some form of supply chain bullying in the past two years, according to the Federation of Small Businesses (FSB).

A survey conducted by the federation among 2,500 of its members across the UK found that 17% had encountered what they viewed as unfair payment tactics by larger firms they supply.

According to the FSB, the five payment practices most resented by small firms are:

: : Pay To Stay: A levy charged to suppliers, either as a requirement to remain on the company’s supplier list or packaged as an “investment” in future opportunities.

: : Pay You Later: Pressure to accept an extended of payment deadline, beyond the EU standard of 60 days, to 90 or even 120 days, amounting in effect to an interest-free.


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: : Late Payment: Either exceeding the agreed payment terms or, in some cases, changing the terms unilaterally and retrospectively.

: : One For You, One For Us: Automatic discounts awarded by big firms to themselves for paying early or even just on time.

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: : Balance Sheet Bonuses: Discounts which effectively change the terms of an agreement after a contract has been signed, imposed by methods such as threats of de-listing or the withholding of payment.

Earlier this month, Premier Foods, the company behind brands such as Mr Kipling, Bisto and Ambrosia, suffered a storm of negative publicity over a so-called “Pay To Stay” letter sent to some its suppliers.

Premier agreed to review its approach, while insisting that its scheme had been “misrepresented and misunderstood”, but the FSB says its research indicates that such problems are widespread.

Jeanette Thurtle, the FSB’s development manager in East Anglia, 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.

“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.”

Among the FSB members in Suffolk to have encounted such tactics is Omega Ingredients from Great Blakenham, near Ipswich.

Founder and chief executive Steve Pearce said: “Our company has experienced the demand for extended payment terms of 90 days and beyond and even then the customer pays late.

“We have received demands to set up a retrospective rebate or bonus scheme, which is becoming more common and including threats to discontinue placement of orders if a scheme is not put into action.”

The owner of another small business in Suffolk, who declined to be identified, told the FSB: “One of our customers imposed 90-day payment terms and kindly awarded themselves a 2.5% settlement discount for settling their account on time. “Another of our customers applies a similar settlement discount scheme, but this is on a sliding scale and if you accept 90 days for payment, they will not apply a settlement discount.

“They also attempt to enforce promotional activity entitled Business Investment Plans. Failure to support may result in retrospective payments of up to 25%.”

Jeanette Thurtle added: “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.”

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