Small business groups have criticised Alliance Boots for imposing new terms under which it will pay suppliers up to 105 days after billing and charge them a 2.5 per cent “settlement fee”. The move is seen as symptomatic of a credit environment in which payment periods are lengthening as the economy slows – although the pharmacist said the changes had been in train since 2006.
The Forum of Private Business, which represents 25,000 small businesses with 600,000 staff, said it was “naming and shaming” Alliance Boots “for squeezing its smaller suppliers”. FPB chief executive Phil Orford, said: “The practice of large retailers abusing their buying power continues to have a very negative impact on smaller businesses.”
The Federation of Small Businesses (FSB), whose 210,000 members include many self-employed people, said: “We disapprove of this [policy of Alliance Boots]. Small businesses should be paid in a reasonable timescale because they operate on such tight margins.”
However, Alliance Boots said it was only standardising payment terms within its businesses and bringing them into line with industry norms. It said: “We are certain our procurement standards are in line with those of other groups of similar size and scale. We have always worked collaboratively with suppliers and will continue to do so.”
The change in credit terms was signalled to business organisations when members received letters from finance staff at Alliance. These told suppliers that the new terms would “provide for payment 75 days from the end of the month of invoice”. This means an invoice submitted at the start of a month would not be paid for more than 100 days. Alliance Boots described a 2.5 per cent reduction in the prices paid by Alliance Boots as “a settlement discount”.
Big businesses have featured in a series of surveys as the slowest payers. The result is that small businesses, in effect, provide large customers with valuable interest-free loans. The government has attempted to tackle the problem by
creating legal powers for companies to charge interest to late payers. However small suppliers are unwilling to do this because it would jeopardise repeat orders.
According to the FSB, some large businesses have responded to a requirement to report the average time it took them to pay bills to Companies House by setting up separate “payments subsidiaries”. This can allow a big business to keep a poor payment record out of sight, making it less likely that suppliers will reject it as a customer.
A report from the Bankers Automated Clearing Services in January found the value of payments made later than the agreed period rose to £2.6bn in 2007. This took the total late payment burden shouldered by smaller businesses to £18.6bn last year.