Watchdog raps Tesco on day Bank of Scotland study highlights amounts customers owe SMEs

The Federation of Small Businesses in Scotland said the findings underline the seriousness of a problem which could force many businesses over the edge.

“These figures should be shocking, but sadly they tally with the FSB’s own research” said head of external affairs in Scotland, Colin Borland. “Four in ten of our members have waited over 90 days beyond the agreed payment date before they eventually get what they’re owed.

Mr Borland added: “One in four smaller businesses will go bankrupt if the amount outstanding grows to £50,000.”

He said some significant operators were exploiting the disparity of power between them and their smaller suppliers, effectively using them as a free overdraft.

Yesterday a watchdog found that supermarket giant Tesco had been in serious breach of the code that is meant to ensure giants treat suppliers fairly and pay invoices on time.

The Groceries Code Adjudicator Christine Tacon said: “I found that delay in payments was a widespread issue that affected a broad range of Tesco suppliers on a significant scale.”

Ms Tacon noted that as well as imposing a strain on SMEs’ finances late payments took up lots of time to chase.

The Bank of Scotland study found many SMEs in Scotland are braced for customers to make life harder.

Some 32 per cent of small businesses expect more of their customers to demand deferred payment terms in the next six months.

The results raise obvious questions about the effectiveness of official efforts to clamp down on late payments.

The Federation of Small Businesses said the UK Government needed to act.

“Coming on top of the damning findings about Tesco’s payment practices, these figures underline the need for a stronger prompt payment code and a Small Business Commissioner with sufficient powers to intervene and resolve late-payment disputes quickly and effectively.”

Liz Cameron, chief executive of Scottish Chambers of Commerce also called for action noting that the organisation’s research indicated that cashflow issues had become more prevalent than they were a year ago.

She said: “In the current economic climate, businesses need the confidence to invest and grow. Late payments can hold this back and the culture must be tackled from the top down.”

Bank of Scotland found almost one in eight (12 per cent) of the Scottish SMEs that responded admitted to having cashflow problems, compared with 15 per cent in 2014.

Some 36 per cent of respondents said late payment was the biggest cause of cashflow difficulties, twice as many as blamed demand issues.

The average turnover of SMEs that responded was £7.6 million.

In 2013 the Coliation Government toughened up late payment legislation dating from 1998 in a move it said would help make paying on time the norm.

Under the amended Late Payment Directive debtors can be forced to pay interest and reimburse the reasonable recovery costs of the creditor, if they

do not pay for goods and services on time, defined as 60 days for business and 30 days for public authorities.

However, sceptics have noted that SME s may be reluctant to try to enforce such provisions for fear of losing business.

Bank of Scotland said firms could use invoice financing to unlock funds. This involves selling debts to banks, usually at a discount to their face value.

The study suggests many SMEs may be sitting on valuable assets that they could draw on to fund growth.

The bank found Scottish SMEs own an average of £489,185 in assets that could be used to fund further growth, more than three times the £145,000 owned in 2014.

Tesco said it will continue to work collaboratively with suppliers to further build trust, following publication of the Groceries Code Adjudicator’s (GCA) report.

Chief executive Dave Lewis said:

“In 2014 we undertook our own review into certain historic practices, which were both unsustainable and harmful to our suppliers. We shared these practices with the Adjudicator, and publicly apologised.