SMEs are being weighed down by the payment practices of their customers throughout the supply chain, according to the Federation of Small Businesses.
FSB national chairman John Allan made the claim in response to recent reports that Premier Foods – owner of the Mr Kipling brand, among others – had demanded that its suppliers should invest their own money into company shares, in order to secure supply contracts.
The company has since defended the action, suggesting that all big brands negotiate on supply costs, and this was simply a way of doing so equivalent to asking for a discount.
However, particular concerns were raised as one company was asked to invest £1,700, there was no clarity on how the sums had been worked out, and there wasn’t even a guarantee of work for all those who agreed to invest.
Mr Allan said: “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, and this has knock-on effects on their own supply chains.
“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.”
The FSB’s own research indicates what some of those ‘knock-on effects’ can be, with late payment causing 32% of its respondents to pay their own bills late, 29% unable to grow due to poor cash flow, and 15% facing difficulties paying their staff.
Mr Allan added that the government should take action to resolve this issue, either through a firmer stance on payment practices in the Small Business Bill, or through a tougher Prompt Payment Code that goes beyond simply being a list of compliant companies.