FSB condemns Premier Foods for unfair payment practices

The Federation of Small Businesses (FSB) can reveal alarming fresh evidence from within its own membership of a deterioration of UK payment practices. The new example relates to one of the UK’s biggest businesses, and highlights a trend which could cripple small businesses.

In a recent letter to suppliers, Premier Foods, the UK’s largest food producer, has requested a compulsory ‘investment payment’ to be made by any company wishing to stay on its approved supplier list. The demanded payment would not necessarily guarantee any future contracts and it is unclear how the payments have been calculated. One small business in the South West was asked to handover almost two thousand pounds (£1700) to secure the chance for future business with Premier Foods.

The FSB has long been concerned about the deteriorating payment practices in the supply chain. Although not the first company to attempt to force suppliers to make such payments, Premier Foods is the first to make such an explicit link between payment and inclusion on supplier lists. It is also the first to indicate the payments are to become an annual event rather than a one off.

Large companies are usually considered to have a lower risk profile compared to smaller companies and therefore enjoy better access to finance, and at more competitive rates. By forcing small firms to make such supplier list payments, or accept late payment for the money they are owed, big companies are pushing their suppliers to breaking point.

Research carried out by the FSB shows that late payment has resulted in a third of its members paying their own suppliers late (32%), three in 10 say it has restricted their ability to grow (29%) and well over a tenth say it has resulted in difficulties paying staff (15%).

John Allan, National Chairman of the Federation of Small Businesses, said:

“Premier Foods should be ashamed of themselves. Driving a hard bargain with your suppliers is one thing, but demanding a cash gift under the threat of delisting, is downright unfair”

“The deterioration of payment practices is an anchor dragging on the potential of small and medium businesses to grow and take on new staff. Too many firms are waiting months for the money they are owed, and this has knock-on on their own supply chains. If the questionable practice being attempted by the likes of Premier Foods becomes the accepted norm, it may well sink those small firms without the cash reserve to prop up their larger customers.

“The Government has a golden opportunity with the Small Business Bill to take a firmer stance on payment practices. It also needs to do more to toughen up the prompt payment code, making membership more than just inclusion on hollow list of big companies.”

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