Supply chain bullying: Five things to beware

Commenting after Premier Foods was forced to backtrack over its widely criticised ‘stay-and-pay’ tactic, the FSB warned nearly one-in-five small businesses suffered supply chain bullying.

Topping the list of unfair practices was pay-and-stay or demands for flat fees from suppliers in return for continued business. The four other most resented practices were: excessively long payment terms, exceeding payment agreements, discounts for prompt payment and retrospective discounting.

Flat fees refer to charges levied on suppliers either as a requirement to be on a supplier list, or packaged as an investment into hypothetical future business opportunities. Suppliers that refuse to pay were often threatened with de-listing. New FSB research indicated that 260,000 businesses could face ‘pay to stay' charges, after 5% of businesses surveyed said they had been asked to make a payment by a customer or face de-listing.

‘Immoral payment practices’​

FSB national chairman John Allan said the public was unlikely to connect their favourite brands with the sort of “immoral payment practices” which ​are becoming increasing common in a growing number of industries. “However, it is clear that whenever these examples come to light, the public shares the same sense of moral outrage as the small firms that have to put up with them on a daily basis,”​ said Allan.

Members also complained about excessively long payment terms – ‘pay you later’. While the EU had issued a directive in 2011 requiring all businesses to pay their suppliers within 60 days, or face interest payments on money owed, the UK implementation of the directive allows businesses to agree longer terms “provided it is not unfair to the creditor”,​  said the FSB.

“This has led to many companies insisting on payment terms of 90 or even 120 days. In effect, this becomes an interest-free loan from firms in the supply chain to large companies with excessive payment terms.”​

In addition to insisting on long payment terms, many companies were routinely exceeding agreed terms, or changing terms retrospectively to allow the delays in agreed payment dates.

Arbitrary discounts​

Discounts for prompt payment – ‘one for you, one for us’ – also drew complaints from small-scale suppliers. This referred to big firms’ arbitrary discounts 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 it paid on or before the 120th day.

Finally, retrospective discounting referred to large businesses seeking to apply retrospective discounts to outstanding money owed to a suppler. This involves the company effectively changing the terms of the contract signed with the supplier after a contract has been agreed.

The methods used included: threats of de-listing, withholding payment, ‘marketing contributions’ and previously un-agreed discounts applied to specific volumes of business.

FSB members were fast approaching breaking point, said Allan. “They are no longer prepared to put up with these sharp practices. Brands that think they can continue to squeeze their suppliers with impunity may get a nasty shock when what they are doing comes to the attention of their consumers.”​

Meanwhile, Premier Foods insisted last week it had done nothing wrong in implementing pay-to-stay. But after it had been widely “misunderstood and misinterpreted”,​​ the firm had decided to “simplify”​ the practice.

Top five supplier ‘bullying tactics’​

1) Flat fees – ‘pay to stay'

2) Excessively long payment terms – ‘pay you later'

3) Exceeding payment agreements – ‘late payment'

4) Discounts for prompt payment – ‘one for you, one for us'

5) Retrospective discounting – ‘balance sheet bonuses'

Source: FSB