The Federation of Small Businesses (FSB) has highlighted “questionable” payment practices that it says could cripple small businesses.
Its warning came on 5 December, after Premier Foods, the UK’s largest food producer, wrote to contacts suggesting a compulsory “investment payment” from any company wishing to stay on its approved supplier list, although the payment would not necessarily guarantee any future contracts. One small business in the South West was asked to pay almost £1,700.
On the same day, Business Secretary Dr Vince Cable wrote to the Competition and Markets Authority asking it to investigate such “pay-to-stay” activity. He said: “I am very concerned that the practice is becoming commonplace and is placing considerable strain on already hard-pressed small businesses.”
Premier Foods – whose brands include Mr Kipling and Hovis – subsequently said it would reconsider the investment payments scheme.
The FSB said: “By forcing small firms to make such supplier list payments, or accept late payment for the money they are owed, big companies are pushing their suppliers to breaking point.”
FSB research has found that late payments have resulted in a third (32 per cent) of members paying their own suppliers late and restricted the ability to grow of a similar number (29 per cent) while 15 per cent said it had led to difficulties in paying staff.
John Allan, FSB chairman, added: “The deterioration of payment practices is an anchor dragging on the potential of small and medium businesses to grow and take on new staff. Too many firms are waiting months for the money they are owed.
“If the questionable practice being attempted by the likes of Premier Foods becomes the accepted norm, it may well sink those small firms without the cash reserve to prop up their larger customers.”
As the FSB research shows, late payments and bad debts can have a significant impact on smaller businesses and there may be times when legal intervention is the most appropriate way forward to recover money owed.
Palmers can provide expert advice to creditors to assist in deciding the most appropriate approach for maximising the return of money owed, from issuing and serving statutory demands through to advice and representation in insolvency proceedings or in the enforcement of judgements. For more information, please contact Andrew Skinner. For assistance in negotiating commercial terms and conditions with customers or suppliers, please contact BJ Chong.