Calls to put a stop to late payments from large companies are surging after small business owner Steve Sutherland gave up £5m of his company's turnover in a public protest against the practice at Balfour Beatty (Other OTC: BAFBF - news) .
The move ended a 13-year trading relationship with the construction giant.
After he announced in The Daily Telegraph that he was sacrificing 40pc of his turnover to make a stand against payment practices which he claimed risk putting suppliers “out of business”, the owner of glazing contractor Dortech revealed he was putting his “tin hat on” in anticipation of a commercial backlash.
Instead of brickbats, however, Mr Sutherland has been greeted with plaudits for protesting against his “constant difficulties”, which he said included waiting more than 200 days for bills to be settled and having retrospective discounts imposed on the value of completed work.
He said: “Late payment is not illegal, but morally, ethically? The consequence is companies going out of business.”
This weekend, as Michael Fallon, the business minister, pledged to “go to war” on bad payers, The Telegraph is launching a campaign calling for large companies the worst culprits according to research to halt poor payment practices.
The Forum of Private Business, a lobby group for small businesses which has long called for firms to improve their treatment of suppliers, is backing the initiative. It said companies must stop “creating artificial lines of credit at the expense of small firms”.
Phil Orford, chief executive of the forum, said late and slow payment is “seen in all sectors, in all trades, washing down supply chains right across the UK”.
He added that the issue had become worse during the downturn since large firms had tried to improve their own cash position through lengthened payment terms, while suppliers could often no longer rely on their bank to plug the resulting gaps in their cash flow.
“It may be for this reason that more and more businesses are finding the practice unacceptable, not simply for ethical reasons either, but on an operational level. Late and slow payment eats away at cash flow, making it difficult or, in some cases, impossible for firms to continue trading,” he said.
Mr Fallon has written to the chief executives of all FTSE 350 companies, asking them to sign a prompt payment code, a voluntary scheme which promotes good practice.
Next (Other OTC: NXGPF - news) month, he will “name and shame” those that don’t respond positively, he revealed today. But the code says little about slow payment instances where payment terms are long in the first place.
Last month, mobile phone company O2 moved some of its suppliers on 60 or 90-day terms to 180 days meaning companies have to wait six months for bills to be settled. Mr Orford said: “Asking any business to wait half a year for payment is not just morally questionable, it’s almost certainly damaging to those on the receiving end.”
A spokesman for O2 said at the time the payment terms were reported: “These terms have been in place in the UK since 2009 but it is possible that some suppliers, during contract renegotiation, will have seen these terms for the first time.”
Mr Fallon hinted at a willingness to go further than the code. “Large companies are sitting on an awful lot of cash at the moment and it is simply not fair if they don’t pay their suppliers or subcontractors on time. It is absolutely unacceptable,” he told The Sunday Telegraph.
Mr Fallon said he had heard “horror stories” of lengthy payment terms, including a “well-known high street name” with terms of “nearly 200” days. “I am going to war on it,” he said.
While existing legislation allows companies to charge interest on overdue bills, it is rarely used.
Mr Orford thinks public and political pressure on the “culture of acceptance” of poor payment practices is as important as direct government intervention. The forum called this weekend on the Coalition to make more use of its buying power to bar bad payers from winning public sector work.
“Big, corporate businesses are eager to present themselves to the public as socially responsible, ethical organisations, but those seeking to enhance their profits at the expense of small firms are anything but,” he said.
Last October, The Telegraph revealed that Sainsbury’s lengthened its standard payment terms to 75 days for all non-food suppliers some of which were used to having bills settled within 30 days. A spokesman for Sainsbury’s said: “We have written to our [non-food] suppliers about our intention to bring their payment terms more in line with the rest of the industry.”
However, in a sign of growing anger, Sainsbury’s faced sterner criticism for the move than other supermarkets have received for similar decisions in the past.
As well as having the terms labelled “unacceptable” by the Forum, which entered the supermarket giant into its “hall of shame” of bad payers, Sainsbury’s was criticised during a Commons debate on the issue in November (Xetra: A0Z24E - news) .
In an echo of the recent row over Starbucks’ tax avoidance, Labour MP Debbie Abrahams who has led her own campaign against late payment said she would boycott the supermarket and called for other consumers to do the same. “I hope others vote with their feet, but I also hope that shareholders — not just Sainsbury’s shareholders, but shareholders of [other late or slow-paying FTSE 100 (FTSE: ^FTSE - news) firms] — will show their strength of feeling at their next annual general meeting, in the same way they showed their feelings about boardroom pay,” she said.
“The business community as a whole should put pressure on their peers. We can do a lot collectively.”
A leading suppliers’ group, the National Specialist Contractors’ Council (NSCC), has praised the stance taken by Mr Sutherland as “admirable” and issued a rallying call for small businesses to “name and shame companies that… regularly delay and withhold payments”.
Suzannah Nichol, chief executive of NSCC, said the only thing “remarkable” about Mr Sutherland’s experiences was his willingness to go public with them.
After being inundated with messages from business owners expressing support, Mr Sutherland said: “Are we an isolated example of this kind of practice? Absolutely not.”
According to electronic payments operator Bacs, companies are currently owed £36.5bn in late payments, with the issue affecting 1m small and medium-sized businesses.