ASDA has come in for criticism after sending out a letter to
its suppliers that appeared to change their payment terms for the worse. This
is not a new phenomenon; credit checker Experian recently published a report
which showed than on average the supermarkets took a month longer to pay than
their contractual terms stipulated
During recent years many companies focussed on
the element of supplier’s credit as they sought to improve their own bottom
lines.
By virtue of their purchasing power large
corporations such as the supermarkets are able to squeeze their suppliers.
It is the SME’s who are feeling the pressure
most acutely. The average small business is owed £31,000 in overdue payments,
amounting to over £30 billion across the UK economy.
The UK has late-payment laws that give small
businesses the right to charge interest, but many avoid doing so for fear of
upsetting customers.
The EU issued a directive in 2013 which aimed
to enforce similar measures across the union, with public bodies given 30 days
to pay and businesses 60.
Cash flow is a vital element for any business
and timely payments are crucial for small businesses trying to grow.
Over the past couple of years many companies
have lengthened payment terms seeing the suppliers as a soft target. As many as
17% of suppliers claim that they have been subject to intimidation over payment
terms by their buyers.
There is evidence that the bigger the company,
the harsher the terms.
With suppliers consistently facing a declining
return it should come as no surprise when they conclude that the game is not
worth the candle.
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