Freshly squeezed

Parry_Mitchell.jpgParry Mitchell on supporting SMEs in the face of big businesses that abuse payment terms

You’ve read the headlines put about by the Tory-supporting press: ‘Labour is anti-business’, ‘Labour is against enterprise’, ‘Labour is hostile to business success’. And you’ve seen how this perception has rapidly taken hold. Well, it’s about time that these incorrect views were challenged.

Having been on our front bench for the Small Business, Enterprise and Employment Bill currently going through the Lords, I can say categorically that while we back this Bill generally it isn’t tough enough in support of small business. 

Labour understands all too well that the future economic growth of our country is dependent on the success of SMEs, and that the mastery of new technologies will propel us to the forefront. In a paper published by Labour Digital, Number One in Digital we do not hide our ambitions. We want the UK to lead the world in digital technology.

You cannot increase employment and generate wealth without growth, and you cannot increase the national tax take over time without the emergence of many successful new companies.

Because I am a serial entrepreneur, I know all too well that that the road for any small and dynamic business is bumpy and difficult. Success presents its own minefield to navigate and I believe it is the government’s job to create a landscape that makes life less hazardous for such ventures. In my experience, the greatest inhibitor to SME growth is cash flow, and the biggest component of problems with this is late payment. Far too many large companies pride themselves in deliberately squeezing small companies and delaying payments for as long as they can.

So why do big businesses engage in such commercial bullying? Simply because they can. While the government wants to change this, Labour wants to go further, giving the proposed legislation even more teeth.

It is estimated that payments delayed over and above contractual terms are in excess of £40bn. Diageo, owners of Guinness and Johnnie Walker, recently informed their suppliers that they would extend payment terms from 60 to 90 days. AB InBev, owners of Budweiser, Stella Artois and Boddingtons, have extended payment terms to 120 days. Heinz have doubled payment terms from 45 days to 97. And the list goes on – Monsoon, GlaxoSmithKline, Debenhams. These companies just change their payment policy on a unilateral basis and put the crunch on their suppliers, and of course on their suppliers own suppliers. It passes the problem down the chain and causes mayhem. Two thirds of members of the Institute of Directors with fewer than 250 employees have suffered from late payments.

We are proposing that any payment made after the terms of any contract will incur an automatic interest rate equal to Bank of England base rate plus 8%. That should focus attention and encourage big business to pay on time. We also want companies to produce a quarterly statement that lists all payments made over 30 days after the supplier’s agreed terms.

‘Pay to Stay’ is another odious example of big companies bullying their suppliers. Premier Brands, makers of Kipling Cakes and Hovis bread, told suppliers just before Christmas that they could lose their contracts unless they made cash payments. They rapidly backed down when faced by public criticism.

But the worst offenders are those big companies who make suppliers ‘sweat’ well beyond the contractual terms and then, when they have them over a barrel, offer to pay immediately providing the supplier is prepared to accept a hefty discount. Our amendments to the Bill seek to stop such thuggish behaviour, and stop big companies using every trick in the book to squeeze their suppliers.

Lord Parry Mitchell is a Labour Peer in the House of Lords and Chair of Labour Digital. He tweets @LordParry

Published 2nd March 2015

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