RUTH SUNDERLAND: Vicious form of corporate bullying on the rise as 1 in 5 small firms claim to have fallen victim to bullying by suppliers
The chief executives of household-name UK companies would no doubt complain bitterly if they had to wait months to receive their salaries.
Yet many large businesses – such as Heinz and AB InBev, which were under fire for their bill-settlement terms this week – have no compunction in imposing long payment delays on their suppliers.
This is a vicious form of corporate bullying that appears to be on the increase.
Supplying: Many large businesses - such as Heinz - have been under fire for their bill-settlement terms this week
Almost one in five (17 per cent) small firms claims to have been the victim of some sort of supplier intimidation or abuse in the past two years, according to the Federation of Small Businesses.
In 2011 the European Union issued a directive saying firms had to pay their suppliers within 60 days or face interest payments.
But the UK implementation allows companies to agree longer terms, provided this is not ‘unfair’ to the creditor, and many have insisted on terms of 90 or 120 days.
Small suppliers, which in theory have agreed to this, are in reality in no position to protest, and lobby groups say they are terrified to complain for fear of reprisals.
Large firms have come up with an array of practices, including ‘pay to stay’ charges, or demands for cash with the implicit threat of being scrubbed off the supplier list if you don’t pay up, and ‘prompt payment discounts’ – in other words, awarding themselves money off for not paying late.
Obviously such an abuse of power is morally suspect.
Such practices mean big multi-nationals are using their suppliers as unwilling bankers, forcing them to provide a supply of interest-free credit for months on end, or to act as sources of free investment funding.
Lloyds Bank this week pleaded with companies to commit to paying small suppliers on time, after almost 60 per cent of firms cited late payment as one of the main causes of cashflow problems.
Pleading: Lloyds Bank this week pleaded with companies to commit to paying small suppliers on time
Many might think a High Street bank is in no position to preach about how to treat small firms, but if customers are driven into insolvency by late payment then the banks will run up losses – and in the case of Lloyds and RBS it is the taxpayer on the hook.
Currently, only 145 FTSE 350 companies are signed up to the Government’s Prompt Payment Code, set up in 2008 and backed by the current Government. More should be encouraged to do so and the code needs more teeth.
The Department of Business should consider setting up confidential helplines that small firms can use to report alleged supplier bullying, and large quoted companies should be obliged to make disclosures about their supplier terms in their annual report.
Bad practices by big business are, at the least, suggestive of a poor culture and may well be correlated with a deeper malaise.
Tesco’s relationship with its suppliers, for example, after many years of anecdotal moaning about tough terms, is under the microscope and the grocer is currently being investigated for its accounting practices by the Serious Fraud Office.
This is an area where shareholders should take much more of an interest: it looks like a can of worms.
Long wait
Sir John Chilcot’s Iraq War inquiry, launched six years ago, is unlikely to see the light of day before the election, and the same applies to the City regulators’ investigation into the downfall of HBOS, which went to the brink of ruin in 2008.
We have already seen a damning report from the Parliamentary Commission on Banking Standards that pointed out a colossal failure of senior management and the board, so some might wonder what more there is to know.
One thing would be whether there are grounds for any sanctions against former bosses, including Labour peer Lord Stevenson, James Crosby and Andy Hornby.
Slow progress: The City regulators' investigation into the downfall of HBOS is unlikely to be seen any time soon
Another is how the former regulator, the FSA, performed in its supervisory duties, particularly so because of the conflicts of interest. Crosby was deputy chairman of the FSA until as late as 2009 and current senior regulator John Griffith-Jones used to chair KPMG, the auditor of HBOS in the pre-crisis years.
Then there is the political dimension. Many would still like to see illumination over the role of then prime minister Gordon Brown in the rescue by Lloyds.
That deal saved Brown from having an all-out collapse on his hands, with the loss of thousands of jobs in his Scottish heartlands, but came at great expense to Lloyds’ shareholders.
Voters will almost certainly be going to the polls in May without the opportunity to read the official City regulators’ report into one of the worst financial calamities ever to afflict this country.
It took place under a Labour government that had been responsible for putting in place the flawed tri-partite system of City regulation with its now discredited ‘light touch’.
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