Large Companies use SMEs as unofficial credit source
The chairman of the Federation of Small Businesses (FSB) has accused large companies of using small firms as an unofficial source of credit.
The criticism follows Alliance Boots’ announcement that it has extended its invoice payment terms so its small–business suppliers will not get paid for more than 100 days.
Alliance Boots, the company behind high–street chemists Boots, wrote to its suppliers in June to inform them that as of April 2008, bills would be paid up to 75 days from the end of the month of invoice – instead of the 30 days previously agreed. In addition, the company introduced a 2.5 per cent ‘settlement fee’ – a charge for paying the bill.
“At a time when small businesses are finding it difficult to deal with a slowing economy and rising costs, it is shocking that large companies think it is acceptable to use them as an unofficial source of credit,” said FSB national chairman John Wright.
Under late payment legislation, if the supplier and customer have not agreed a credit period, the law sets a default period of 30 days. The supplier is entitled to charge interest on late payments from the date the payment becomes overdue.
According to the FSB, while SMEs can legally charge interest on late payments, most are reluctant to do so for fear of losing their contracts with big businesses.
“Big companies appear to be aware that small businesses are afraid of taking them on over payment terms and are abusing their power as a result,” said Wright.
Responding to the criticism, Alliance Boots said it had given notice to its suppliers of the changes to its terms, and is simply bringing its procurement policies in line with those of other companies.
“As part of a two–year process, we announced that we would align our arrangements with our suppliers on a group-wide basis,” said an Alliance Boots spokesperson. “Our procurement strategies are in line with other groups of similar size and scale.”
Other companies cited by FSB members as delaying payments included Vodafone, from which one member claimed it had been waiting for payment since March, House of Fraser, and Lidl, which reportedly has an invoice payment term of 120 days.
Chartered Institute of Purchase and Supply (CIPS) procurement specialist Mike Brookes, said small suppliers need to make their customers aware of the implications for their cashflow if payments are delayed.
“It is important that a supplier is open with the customer so both parties can come to some sort of agreement,” he said.
“However, if the supplier has already agreed to the new payment terms, they can’t then charge for late payments because they have already agreed the customer can pay them later than originally agreed,” added Brookes.
To access a league table of the best and worst companies for paying their invoices on time, visit the Institute of Credit Management-sponsored Payment Scorer website
For more information about late payment legislation, visit the Finance and grants section of the Business Link website