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Small Firms Suffer From Poor Payment Practices

Almost 1 in 5 small businesses have suffered from poor payment practices during the past 2 years, research by the Federation of Small Businesses (FSB).

The survey of 2,500 FSB member businesses found that 17% have faced various forms of “supply chain bullying”.

The FSB has compiled a list of the most disliked payment practices based on the survey findings:

  • ‘Pay to stay’ fees
    Some companies charge suppliers fees to remain on their supplier list and threaten to de-list suppliers if they fail to pay. According to recent research, 5% of businesses said they had been asked to make a ‘pay to stay’ payment or face de-listing.
  • Long payment terms
    Many companies insist on payment terms of 90 to 120 days, despite an EU directive requiring businesses to make payments within 60 days.
  • Late payments
    Many businesses break late payment terms or retrospectively change terms agreed with their suppliers.
  • Prompt payment discounts
    Some big firms give themselves discounts for making payments early.
  • Retrospective discounting
    Some businesses try to give themselves discounts on money owed to a supplier by changing the contract terms after it has been signed.

In response to the survey findings, the FSB is calling on the government to:

  • strengthen the Prompt Payment Code (PPC) by:
    • introducing a maximum 60 day payment term for businesses signed up to the PPC
    • extending the 30 day payment term to the suppliers of companies with public sector contracts
  • prevent other bad practices such as retrospective discounting and ‘pay to stay’.

John Allan, national chairman of the FSB, said late payments are forcing small businesses towards “breaking point”:

“[Small businesses] 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.

“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.”

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