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UK Makes Public Issue of Small Businesses Hurt by Big Companies’ Late Payment Practices
January 15, 2013
Mercator Advisory Group
In the past month, the relatively obscure topic of business-to-business payment terms has become headline news in the United Kingdom.
The subject of late payments has long been a key issue for the Forum of Private Business, a self-described “proactive business support organisation focused on the growth and profitability of small businesses.” It publishes a
“Hall of Shame”
on its website, which chastises those larger firms profiting at the expense of smaller firms, usually as they unilaterally extend their payment schedules. Spurred in part by their lobbying efforts, the issue has become a hot topic in Britain.
Michael Fallon, the U.K. Business and Enterprise Minister, has declared his intention to publicly “name and shame” major UK companies that fail to sign the industry-sponsored “Prompt Payment Code” within the next month:
“Large companies are sitting on an awful lot of cash at the moment and it is simply not fair if they don’t pay their suppliers or sub-contractors on time,” Mr Fallon said.
“That is why I have urged the largest companies to sign up to the Prompt Payment Code, which is five years old this month. I wrote to all chief executives [in the FTSE 350] back in October, since when 54 more companies have signed up, half of those from the FTSE 350, but there are still many more to go. And next month I am going to list those who haven’t signed.”
In December, a small British glazing contractor publicly announced its intention to refuse any future business from Balfour Beatty, one of the largest building contractors in the country, on the basis that slow and late payment of invoices was undermining its cash flow. The only unusual aspect of that story was the willingness of the small business to go public and name names. According to Forum of Private Business chief executive Phil Orford:
“Take Sainsbury’s, for example. We exposed them in October for increasing standard payment times to certain suppliers from 30 to 75 days. That’s a 150pc increase. Then there’s O2, which, in December, wrote to inform its suppliers of an increase to an extraordinary 180 days.
Asking any business to wait half a year for payment is not just morally questionable, it’s almost certainly damaging to those on the receiving end. Imagine the outcry, not to mention problems it would cause for employees’ finances, if a company suddenly told workers, without consultation, they would have to work six months “in hand” before being paid.
The nub of the issue is big business should not be creating artificial lines of credit at the expense of small firms.
Following the December story, so many small businesses contacted the The Sunday Telegraph and The Daily Telegraph to report similar experiences that the paper has launched what it calls a major campaign on the topic. A sampling of their stories are listed in links below; we have no doubt there will be more.
Contact Patricia McGinnis
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