BEIS publishes the impact of poor payment practices

Following up concerns about poor payment practices raised during the current inquiry on Small businesses and productivity, and from previous work in the joint Carillion inquiry about treatment of suppliers, the Business Committee wrote to a number of high profile companies to ask if they were signed up to the Government’s initiative to address poor payment practices – the Prompt Payment Code – and to request details of their payment terms and the time taken to pay invoices.

Rachel Reeves MP, Chair of the Business, Energy and Industrial Strategy Committee said “Smaller enterprises make up more than 99% of private businesses and are a dynamic part of the UK economy. But small companies face a host of challenges in trying to grow and boost their productivity, not least in handling the difficulties they face when they are paid late. Supply-chain bullying is all too commonplace. The correspondence the Business Committee has received suggests payment terms are getting longer and that big, high-street companies are taking far too long to pay their suppliers.”

Federation of Small Businesses (FSB) National Chairman Mike Cherry said: “The correspondence published by the Business Select Committee uncovers a complete disregard for good corporate governance within some of the UK’s biggest businesses. Some of the payment practices described here are really shocking. A big business waiting 800 days to pay a supplier is nothing short of disgraceful.”

“The Committee has exposed a late payment hall of shame. Many of these businesses are household names. While British shoppers pay instantly for products and services, they will be surprised to hear that the money they hand over today does not reach suppliers for upwards of 90 days – particularly in what is supposed to be the season of goodwill leading up to Christmas. It’s now up to the Government – through its Call To Evidence – to come up with solutions that definitively end a UK late payment crisis which destroys 50,000 small firms a year, stifles economic growth and hampers productivity.”

“We need to see a fundamental shift in attitudes across boardrooms. The only way to make that happen in these large firms is for each to appoint a Non-Executive Director responsible for overseeing supply chain practice, chairing a Supply Chain Committee alongside their Audit and Remuneration Committees. The case for such Directors has never been stronger. Small firms shouldn’t be left waiting any longer.”

BEIS found that several high street stores, such as WH Smiths, Holland and Barrett, and Boots UK have long payment terms. WH Smiths, for instance, has standard payment terms of 90 days and maximum payment terms of 120 days, Boots UK have standard payment terms of 75 days and maximum payment terms of 120 days, while Holland and Barrett, who did not reply to the Committee’s correspondence, have standard payment terms of 90 days.

SMEs can also face other unfavourable payment terms. Correspondence to the Committee showed that Boots UK’s standard terms include a 2.5% discount that they deduct “for all suppliers irrespective of size”, while Robert Dyas informed the Committee that they included within their standard terms “a 2% settlement discount, with a policy of 0% for suppliers with less than £100k turnover”.

The Business Committee also examined the issue of late payments. Several companies looked at by the Committee took on average more than 60 days to pay an invoice. Thomas Cook PLC took on average 88 days to pay their invoices which they reported [see note below], Britvic Drinks took 86 days, General Electric Energy UK Ltd 77 days, Holland and Barrett 68 days and Waterstones Booksellers Ltd 65 days. Thomas Cook told the Committee in their correspondence that they did not gather transactional level detail for the whole of their group centrally and that Thomas Cook Group Plc represented 1% of all Thomas Cook Group payments.

The Prompt Payment Code (PPC) sets standards for payment practices and best practice and is administered by the Chartered Institute of Credit Management. The Code is voluntary and signatories can be removed for non-compliance. The Committee found, after writing to a number of high profile companies, that a majority of those who replied were not signed up to the PPC.  For instance, the following companies were not signed up: WH Smiths; Boots; Siemens; Nike; Yodel; Thomas Cook; Punch Taverns; Warner Music; Manchester United Football Club; Arcadia; Robert Dyas; Aston Villa Football Club; Mears Group PLC. Companies who were signatories included: GlaxoSmithKlein; Waitrose; Reed; Barratt; Capita; G4S.

The following did not reply to the Committee’s request: Manchester City Football Club; Britvic Drinks; Waterstone; Holland and Barrett; General Electric.

The joint BEIS and Work & Pensions Committee inquiry on Carillion highlighted the fact that the firm was signed up to the code but was enforcing payment terms of 120 days.

Major construction company Kier and Mears Group PLC confirmed to the Committee they were not signed up to the Construction Supply Chain Charter.  Kier are signatories to the Prompt Payment Code.