Supply chain bullies squeezing small firms, claims FSB

7 minutes Mark Halstead

Corporate powerhouses are squeezing the life out of smaller businesses in the UK through a variety of unfair pricing and payment practices, according to the Federation of Small Businesses (FSB).

The organisation recently shined a light on and condemned the payment practices of Premier Foods, which has apparently been demanding compulsory ‘investment payments’ from all its smaller-scale suppliers. These so-called ‘pay-to-stay’ fees are believed to have been insisted of dozens of small companies across the UK who wished to remain on the supplier list of what is Britain’s largest food producer.

“In competitive markets the pressure on supply chain can cause business failure, the Red Flag Alert Business Intelligence platform identifies at risk companies and the figures for Q4 2014 showed a 92% increase in ‘Significant Distress’ for businesses in the Food and Beverage sector.   

Our clients use Red Flag Alert Monitoring to protect the integrity of their supply chain and reduce business risk,” said Mark Halstead MD of business risk experts Red Flag Alert.

A few weeks after discovering evidence of what it calls Premier Foods’ “downright unfair” payment policies, the FSB has released findings that suggest almost one in five small businesses in the UK has suffered from supply chain bullying in some form over the past two years.

The federation is calling on the government to do more to protect small companies and to toughen up the Prompt Payment Code, which seeks to provide an outline for best practice within supply chains around the country.

“The government has indicated that they are prepared to do more to improve the culture of payment practices in the UK and they are right to do so,” said John Allen, national chairman of the FSB.

“The sense I get from talking to our members is that small businesses are fast approaching the breaking point. 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.”

To get a sense of how prevalent supply chain bullying has become across Britain, the FSB quizzed 2,500 of its members and found that 17 per cent had been the victim of strong-arm tactics from big businesses over the past 24 months.

Among the practices highlighted as being unfair and worthy of much greater scrutiny were the kind of ‘pay-to-stay’ demands recently issued to Premier Foods suppliers, as well as strategies such as retroactive discounting and self-certified prompt payment discounts. The issue of big businesses arbitrarily changing terms of agreed deals and insisting on having 90 or even 120 days to pay their suppliers were also emphasised as key areas of concern for the FSB.

“When the public think of their favourite brands, they are unlikely to connect them with the sort of immoral payment practices which are becoming all too common across an increasing number of industries,” said Allen in a statement.

“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,” he added.

According to figures recently compiled by the accountancy firm Moore Stephens, there were 146 food producing companies declared insolvent in the UK in the 12 months to the end of September 2014, which represents a jump of 28 per cent year-on-year.

Moore Stephens laid much of the blame for the rising insolvency rates among food producers at the door of Britain’s biggest supermarket chains which have been fighting increasingly fierce price wars in recent years.

“To try and make the maths work, the big supermarkets are putting food producers under so much pressure that we have seen a sharp increase in the number of producers failing,”explained Duncan Swift, a Moore Stephens partner.

“The fear of losing business from supermarkets means that food producers rarely – if ever – complain about clear breaches of agreed industry standards,” Swift said. 

Stay informed

Sign up to receive expert insights direct to your inbox.

richard west Mark Halstead Partner

Mark's experience is big data analytics, financial services and building businesses provides Red Flag Alert with strategic direction.