The vast majority (85%) of small firms that operate within European supply chains report being paid late, according to research from the Federation of Small Businesses (FSB). The FSB’s report, ‘Pay it Forward: Lessons and recommendations for Europe from the UK payment landscape’, reveals that despite positive steps, like the introduction of the Late Payment Directive, the issue of poor payment practices continues to persist across Europe.
Despite the Directive’s rules on maximum payment terms of 60 days, the report shows that one in four (22%) small businesses report payments terms of over 60 days, while more than a third (37%) of FSB smaller suppliers say that their payment terms have increased over the last two years.
Supply chain bullying continues to be a major issue that the Directive fails to address, and the report highlights that 12 per cent of small businesses have been asked for a discount in return for prompt payment.
FSB calls on the European Commission and EU member states to introduce a number of changes aimed at strengthening existing initiatives to help change the culture on poor payment practices in the EU. These recommendations include:
- Strengthen small businesses’ legal protection against lengthy payments terms by more precisely defining the term ‘grossly unfair’ as used in the Late Payment Directive
- Issue a recommendation that all Member States introduce a duty to report on payment practices for large companies or introduce such a requirement via any reform to the Late Payment Directive
- Appoint sector-specific ombudsmen for those sectors that are most at risk of late payments, starting with the food supply chain but also looking at sectors with high exposure to late payments such as construction
Responding to the report, FSB National Chairman, Mike Cherry, voiced the need of small firms to see further action ensure that we truly achieve the Directive’s aim of ‘a decisive shift to a culture of prompt payment.’He said: “Poor payment culture is a problem without borders, damaging small businesses in the UK and across Europe. It is an issue that has persisted for far too long and the time has now come to ramp up efforts to shift the cultural dial on poor payment practices in the EU. Even with the UK leaving the European Union next March, the reality is that the EU single market will remain the biggest market for British small firms for the foreseeable future. This is why it is vital that a culture of prompt payment flourishes across Europe.”
“Whether for services or good delivered locally or cross-borders, paying on time is the moral and right thing to do – pure and simple. It is a win-win for everyone involved in the supply chain and the wider economy. When treated right and paid on time, small firms create jobs and growth that benefit us all.”