A new study by the small business commissioner and Lloyds Bank Commercial Banking found that a majority of the UK’s largest businesses are failing to pay their suppliers on time. 65% take more than 30 days to settle their bills, and 21% are taking a minimum of 50 days. 2% (150 firms out of a study sample of 7,000) are forcing suppliers to wait more than 80 days before payment. The research reveals that despite a national average of 37 days, a postcode lottery is closer to the truth in Britain. Suppliers in London, for example, receive payment within 34 days on average, the shortest time recorded. But big companies in Yorkshire and Humber settle bills in 43 days on average, the longest average period in the country.
The implication is that supply relationship management takes a low priority in too many large British companies. Paul Uppal, the small business commissioner, charged them with using their suppliers to finance their business. He is now urging the development of a traffic light system so that small firms can see at a glance whether the larger businesses they are contemplating trading with pay their bills promptly. Uppal wants smaller firms to be able to make more informed choices when considering trade with larger companies. He said: “A traffic light system would be a simple and effective visual way of highlighting which larger businesses are paying promptly and are working in partnership with their supply chain.”
Underlining the wide divergences in payment time the study uncovered, Ed Thurman, MD of global transaction banking at Lloyds Bank Commercial Banking, emphasised that for some smaller firms, two weeks “can be critical in the financial well-being of a smaller businesses.” He urged larger companies to use invoice financing products to overcome any obstacles to prompt payment.
Procurement practitioners in these larger firms, it seems, will need to place enhanced supply relationship management on a par with cost reduction and sourcing savings.