Are larger companies still unfairly exploiting their suppliers?

17/11/2016

Fresh findings from the latest Ormsby Street analysis have confirmed yet more stark revelations of the continuing problem regarding late payments to small business suppliers from the UK’s leading retailers, despite an attempted crackdown on the transparency of payment practices.

As we knew from earlier this year, every Supermarket in the UK exceeded the payment terms for their suppliers to some degree, the worst offenders being Tesco and Asda who notched up an impressive 149 County Court Judgments (CCJs) between them in the past six years after failing to pay invoices on time.

Interestingly, despite the EU late payment directive and proposed tougher payment laws, there has still been no substantive positive movement on the issue of late payment for many suppliers in the UK. Tesco tops the list, according to the Ormsby Street research, taking an average of 105 days beyond terms to pay its suppliers, followed by Iceland and Debenhams with 75 and 73 days respectively.

The analysis also revealed that the time taken to pay a small business supplier in a list of 20 top retailers was on average 45 days beyond terms, with the value of said invoice £6,142.

“If an invoice had 60 day terms, a small business would be waiting on average more than 100 days for payment – that’s clearly unacceptable,” said Martin Campbell, the Managing Director of Ormsby Street.

“Also, because Christmas is such a major part of the shopping calendar, any orders may be much larger than at other times of the year. This means that a small business could be waiting for even more money during the festive period. If they have had to take on extra staff or resources to meet the order to a major retailer, this could be a potentially difficult and damaging time for their cash-flow.”

This frustrating evidence proves that large retailers, in particular supermarkets, are still using their name and size in order to take advantage of small business suppliers – realising the significance of the transaction for the smaller firm.

Ultimately, the knock-on effect would be highly detrimental to small business suppliers as they are forced to find a way to bridge any cash flow shortfall, which if not bridged may impact on vital business aspects and hinder growth.

The new tougher payment laws, proposed by the Small Business, Enterprise and Employment Bill in October last year, call for big businesses to publish their payment terms in a bid to improve supply chain transparency and reduce late payments, making it easier for small business suppliers to make decisions.

This, in turn, should encourage firms to pay much sooner, building reputation and trust among suppliers and customers. Not doing so could lead to a decline in popularity, bad PR and even potentially a decrease in sales.

If you are a small business, worried about how late payment could affect you, here are 3 simple preventative measures to minimise any future sticky situations:

1. Set out payment terms before committing to orders

This may sound a little off-putting at first; having just won a contract with a huge retailer you may feel on top of the world and not want to upset them, but outlining your payment terms at the start of any supplier/retailer relationship will ensure everyone is aware of the payment conditions required. No excuses!

2. Credit check your customers

No matter how big they are, always credit check. As the analysis proved, the big retailers are sometimes the worst offenders. Ask yourself if your cash flow could survive credit terms of 90 or 120 days, plus their average delay of 45 days. That’s a long time to wait for payment.

3. Chase for payment when it is due

Always stay on top of deadlines approaching and take the time to call your customer to reconfirm payment dates before they arrive. If they do miss the due date, call them immediately to check on the status of the payment. They may have simply forgotten, or there may be an underlying issue that can only be resolved by communicating with them directly, so don’t delay!

If you would like to find out more about how to stay one step ahead of late payment, read up on our ‘10 commandments of cash flow management‘ blog.

Have you had any late payment experiences with big retailers? Let us know in the comments section below.