Supply Chain Bullying

January 23, 2015 § Leave a comment

A couple of days ago, the UK’s Federation of Small Businesses [FSB] issued a News Release about the impact payment practices on SMEs. As part of this release, the FSB listed five of the “most resented payment practices in use” right now.

Flat Fees [aka ‘Pay to Stay’] These are also known as ‘supplier assessment charges’ or ‘supplier investment payments’. They are flat charges which companies levy on suppliers either as a requirement to be on a supplier list, or packaged as an investment into hypothetical future business opportunities. It is often indicated that non-payment will result in delisting.

Excessively Long Payment Terms [aka ‘pay you later’] In 2011 the EU issued a directive requiring all businesses to pay their suppliers within 60 days, or face interest payments on money owed. However, the UK implementation of this directive allows businesses to agree longer terms ‘provided it is not unfair to the creditor’. This has led to many companies insisting on payment terms of 90 or even 120 days.

Exceeding Payment Agreements [aka ‘late payment’] As well as insisting on long payment terms, many companies appear to be routinely exceeding agreed terms, or changing terms retrospectively to allow them to miss agreed payment dates. Also thought to be common is the practice of extending payment dates if money is owed on, or close to, the end of a financial reporting date in order to smooth a big company’s balance sheet.

Discounts For Prompt Payment [aka ‘one for you, one for us’] Prompt payment discounts are arbitrary discounts big firms give themselves for paying early or even just on time. For example, a firm that has agreed to pay 120 days following receipt of an invoice may also apply an automatic discount of 3% if they pay on or before the 120th day.

Retrospective Discounts [aka ‘balance sheet bonuses’] Some firms seek to apply retrospective discounts to outstanding money owed to a supplier. This involves the company effectively changing the terms of the contract signed with the supplier after a contract has been agreed. Methods used to extract these vary, but include threats of delisting, withholding payment, ‘marketing contributions’ and previously un-agreed discounts applied to specific volumes of business.

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