Tesco’s payments vow a welcome move

A Tesco supermarket in west London. Picture: Toby Melville

A Tesco supermarket in west London. Picture: Toby Melville

Published Oct 12, 2015

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London - See, it was easy. At a stroke last week, the supermarket group Tesco cut through the nonsense that big businesses spout about paying suppliers.

It announced a standardised payments system that from next June will see small suppliers (those who deliver up to £100,000 of products each year) paid within 14 days, and medium-sized suppliers paid five days quicker than the largest companies.

If small business groups, long frustrated by the disgraceful way in which large companies routinely fail to pay their suppliers on time, had wanted one industry to take the lead on this issue, it would have been the retail sector, where supermarkets have often been accused of poor practice. And if they had wanted one particular company to set an example, it would have been Tesco, a company that has been at the centre of a row over how it accounts for payments from suppliers for special offers and the like.

Just to be clear, Tesco is doing no more than it should be. By setting out much clearer timetables for paying its bills, it provides suppliers with the certainty needed for their financial planning. And by committing to paying smaller suppliers more quickly, it recognises that these businesses are more vulnerable to cashflow problems.

Nevertheless, the supermarket deserves credit for its conversion to the cause. The question now is whether other businesses will follow its example.

There are some reasons to be hopeful. We are beginning to see the tide of public opinion turn against large companies that exploit small suppliers by paying late, just as people have become increasingly angry about corporate tax avoidance. The fear of reputational damage is a powerful lever to force change.

The Government's plans to force big businesses to publish data twice a year on their payment practices will help. From April 2016, the standard payment terms of large companies and the average time they take to pay their bills will be a matter of public record. This will make it simpler to take up cudgels against the worst offenders - to name and shame them into improving their behaviour.

So too would a strong stance from the small business commissioner that the Government has promised to create. One of its duties will be to intervene in disputes over late payments between small suppliers and large businesses. Given the right powers, and the option of public censure for wrong-doers, this service could be a force for good.

Still, the numbers are still going in the wrong direction - statistics suggest large suppliers are getting worse at paying their bills on time and that small businesses are owed more than ever before.

In Tesco's case, the proof will be in the pudding - and it's a shame small suppliers are having to wait until next June for the new system.

It's not just that to treat small suppliers in this way is corporate bullying of the worst kind - though it is - but also that this is causing real damage to our economy. The Federation of Small Business's most recent survey of members found that one in three had seen their growth ambitions thwarted because late payment of bills had hit their cash-flows. In other words, a third of small businesses are paying less tax and employing fewer people than they might be, simply because large businesses are taking them for a ride.

THE INDEPENDENT

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