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A sale is a gift until it is paid for


1 February 2016: Research published this week by Lloyds Bank estimates that British SMEs are owed more than £500billion by their customers in outstanding invoices, an increase of more than 70% compared with 2014. The research also states that 17% of SMEs admit to having cashflow problems with 31% saying that late payment was the biggest cause of cashflow difficulties.

Against that background, businesses would have welcomed the opportunity to supply a large UK quoted PLC which is a signatory to the Prompt Payment Code under which it undertakes to pay suppliers on time. Unfortunately, however, where that PLC is Tesco some of its suppliers learned in recent years that the slogan “every little helps” may have reflected its practice of maximising cash at bank by delaying payment.

Tesco’s behaviour was highlighted this week in a report by the Groceries Code Adjudicator, Christine Tacon. The report examines the period from June 2013 to February 2015 and finds that Tesco seriously breached the Groceries Supply Code of Practice which is designed to protect suppliers. Ms Tacon was concerned about three issues, Tesco making unilateral deductions from suppliers, the length of time taken to pay money due and in some cases intentional delays in settling invoices. She said, “The length of the delays, their widespread nature and the range of Tesco’s unreasonable practices and behaviours concerned me. I was also troubled to see Tesco at times prioritising its own finances over treating suppliers fairly.”

Tesco has accepted the report’s findings and apologised to suppliers, stressing how it is now working to build trusted partnerships with them. The Adjudicator cannot fine Tesco as she only acquired this power after the investigation began. However, Tesco is still under investigation by the Serious Fraud Office for alleged accounting irregularities. That could lead to financial penalties for Tesco.

Both the Lloyds and Adjudicator’s report highlight the risk for all businesses when selling goods and services on credit that they won’t get paid Suppliers can use credit information and credit insurance to assess at what level a customer is worthy of credit and cover the risk in providing it. In our experience this often doesn’t happen and we encounter creditors of insolvent companies who could or should have foreseen that their customer was unlikely to pay.

The Chartered Institute of Credit Management reminds businesses of the need to entering into commercial relationships with their eyes open. If suppliers negotiate conditions that are acceptable to them then they can plan for the impact of those conditions on their business. Importantly, this includes making an informed decision about whether they ought to deal with the customer at all.

The management team at BRI has many years’ experience in advising businesses that are struggling financially because they haven’t received payment from customers as expected. If you or one of your clients are facing the issues outlined above, please contact us to explore the options available.