An open letter to all FTSE 100 companies
From: Mike Cherry, National Chairman,
Federation of Small Businesses

I am writing to you regarding the issue of late payments and poor supply chain practice that has seriously held back growth across the UK business community.

Poor corporate practices have been brought sharply into focus following the liquidation of Carillion and the revelations in the Parliamentary joint Select Committee report on the
collapse published last week at: https://publications.parliament.uk/pa/cm201719/cmselect/cmworpen/769/769.pdf

The report shows the full breadth of failures at Carillion which led to its demise. In particular, it highlights the squeezing of its suppliers, and the frailty of the Prompt Payment Code; I wrote to Carillion last July after learning about payment terms stretching to 120 days.

Sadly, Carillion is not a one-off. Across the UK economy, we are now seeing an increase in examples of poor payment practice from larger businesses:

• Lengthening payment terms
• Payment made late, after terms
• Delays in providing an initial Purchase Order
• Retrospective discounting – paying with a shorter delay, but less than 100% of the amount due
• Querying invoices to ‘reset the clock’
• Charging to be on a supplier list, with no guarantee of work

Our research shows the impact of these practices:

• 84% of FSB members, small businesses, report being paid late
• 37% have seen terms deteriorate in the last 2 years while only 4% have seen any improvement
• 30% of all payments are late, with an average value of £6,142
• 37% of small firms have run into cash flow difficulties, 30% have been forced to use an overdraft and 20% cite a slowdown in profits
• c50,000 UK businesses fail each year due to poor payment practice, at a cost to the economy of £2.5bn

Many large firms appear to be using the disparity of power in business relationships to squeeze their suppliers, delaying payments to improve their own cashflow. This is supply chain bullying, pure and simple - and it starves suppliers of their own working capital.

It does not have to be like this.

Today I am calling for your help. Small businesses want to see a turn-around in the UK’s business culture, which is unique in being one where it has become acceptable to pay small suppliers late. As a country, we are behind almost every other industrialised nation in our ability to pay small businesses on time.

We have now secured support from the Secretary of State for Business, Energy and the Industrial Strategy, the Chancellor of the Exchequer and the Prime Minister in our quest to eliminate the scourge of late payments. We have cross-party support for action, right across Parliament.

Now, my request to you, as a leader of one of the UK’s largest companies, is that you personally shine a light on your own company’s payment practices:

• Does your company create a positive relationship with your small suppliers? 
• Has your company received complaints from suppliers, and how do you investigate them?
• As the Chair or CEO, have you met with your suppliers?
• Have you signed the Prompt Payment Code and do you follow the spirit of it?
• Are you reporting on your payment terms, at minimum for the data needed for the Duty to Report on Payment Practices and Performance?
• Have you published a small supplier charter, setting out how you pledge to help small businesses in your supply chain?
• Have you appointed a Non-Executive Director on your board to have responsibility to look after your supply chain?
• Does your company negotiate the terms of your contracts with suppliers individually or do you have standard terms?
• Has your company changed your terms retrospectively i.e. after the initial contract has been agreed?

There should be whole-board ownership and visibility of your firm’s payment practices, and as the leader of the organisation, you need to be personally reassured that your company is operating responsibly. FSB’s doors are open to any large company that wants to come to talk to us about how to do this right.

We hope to see positive ‘Champions’ now emerge amongst the UK’s leading companies.  These will be business leaders who are taking action, recognising the scale of the issue and their own role in helping to resolve it.

Now is the right moment for you as a business leader, and your firm as one of the leading companies in the UK, to join us in setting a new standard for doing business.

I would ask you to support us by considering the questions above, and replying to this letter with what you are doing, or going to do, to help your small suppliers. Could you see yourself as one of the Champions?

Mike.Cherry@fsb.org.uk