The top 5 most resented payment terms

05/01/2015

New research by the Federation of Small Businesses (FSB) has revealed that supply chain bullying has affected almost one in five small businesses in one form or another in the past two years.

As part of the FSB research, which surveyed 2,500 members, businesses were asked to give examples of the most common poor payment practices they had to deal with.

Using this data the FSB has created a list of the five most resented payment practices in use across the UK today. They are:

1. Pay to stay

Premier foods faced criticism from government and industry at the end of last year over its terms on its now scrapped pay-to-stay scheme where the food company demanded fees from suppliers to continue doing business with them. And, unfortunately for SMEs this isn’t an isolated case. New research has indicated that more than a quarter of a million (260,000) businesses could be facing so called ‘pay to stay’ charges after five per cent of businesses surveyed said they had been asked to make a payment by a customer or face de-listing.

2. Pay you later

Many large businesses are insisting on excessively large payment terms despite an EU directive requiring all businesses to pay their suppliers within 60 days, or face interest payments on money owed. This is due to the UK implementation of the directive allowing businesses to agree longer terms “provided it is not unfair to the creditor” so companies can get away with insisting on payment terms of 90 or even 120 days.

3. Late payment

As well as insisting on longer payment terms some businesses are guilty of exceeding payment agreements completely. In fact, late Payment has reportedly affected 85% of businesses over the past two years and in 2013 alone 56% of businesses wrote off more than 1% of their turnover as uncollectable, according to our research.

4. One for you, one for us

Some big business also reward themselves discounts for prompt payment. For example, a firm that has agreed to pay 120 days following receipt of an invoice may also apply an automatic discount of 3% if they pay on or before the 120th day.

5. Balance sheet bonuses

Retrospective discounting is another resented payment practice used by large companies. This involves the company effectively changing the terms of the contract signed with the supplier after a contract has been agreed. Methods used include threats of de-listing, withholding payment, ‘marketing contributions’ and previously un-agreed discounts applied to specific volumes of business.

All of these payment practices are potentially damaging to small businesses who are under constant pressure. But good news for SMEs, the government plans to crack down on bullying in the supply chain by forcing Britain’s biggest companies to reveal every three months how long they are taking to pay suppliers and whether they have changed their terms.

The move, which could come into force this year, would represent the biggest ever overhaul of how companies report their dealings with suppliers and could provide far greater transparency.

What is your most resented payment practice? Please share your experiences in the comments below.