Small businesses are being subjected to a ‘serious deterioration of payment practices’, putting their cash flow under threat, according to a prominent lobbying group.
In a new survey of 2,500 Federation of Small Businesses (FSB) members, almost one in five (17 per cent) say they faced ‘supply chain bullying’ in one form or another in the past two years.
According to the FSB, the results indicate a serious deterioration of payment practices much wider than ‘pay to stay’, when a company demands that suppliers pay a fee to continue doing business.
The organisation is calling for a toughening up of the Prompt Payment Code, as well as fresh measures to stamp out the most heinous examples of bad practice like retrospective discounting and ‘pay to stay’.
The FSB wants to see any company looking to supply the public sector to extend the government’s standard 30-day prompt payment terms to their own suppliers.
Small businesses want 60-day payment terms to be set as an absolute maximum for any business signed up to the Prompt Payment Code, according to the group.
As part of the FSB research, businesses were asked to give examples of the most common poor payment practices they had to deal with including pay to stay. The FSB has used these examples to create a list of the five most resented payment practices in use across the UK today.
The practices include ‘pay to stay’ measures, excessively long payment terms, and exceeding payment agreements.
Prompt payment discounts, arbitrary discounts big firms give themselves for paying early or even just on time, are another annoyance.
For example, a firm that has agreed to pay 120 days following receipt of an invoice may also apply an automatic discount of 3 per cent if they pay on or before the 120th day.
FSB national chairman John Allan says, ‘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.’