With a recent report singling out Tesco for its late payment practices towards its suppliers, one of the South East's leading insolvency practitioners is highlighting the risk that such actions by many other firms pose to the wider health of the regional economy.
In January, the Grocery Code Adjudicator found that Tesco had "knowingly delayed paying money to suppliers in order to improve its own financial position," an action which goes against the industry's code of conduct.
But Andrew Watling, chairman of the Southern Committee of insolvency trade body R3 and a partner at Quantuma in Southampton, believes that, despite a great deal of effort in recent years to improve business practice around paying suppliers on time, the supermarket giant is by no means alone in not implementing the necessary procedures.
Research carried out late last year by R3 found that more than one in five (22%) businesses in the South East are owed payment on invoices that are more than 30 days past their due date.
And with a further R3 member survey suggesting that late payment is a primary or major factor in around 20 per cent of corporate insolvencies, Andrew Watling is keen to stress the impact that late payments can have on South East companies' capacity to expand, evolve or even survive.
He says:
“Tesco has acknowledged its failings and appears to be making a concerted effort to rebuild trust with its suppliers, but our members' experience is that late payment of invoices remains a significant problem across a substantial number of businesses, and one which is causing real damage to those unnecessarily impacted by it.
"Mistakes and delays can always happen, but technology and modern efficient business practices mean that timely supplier payment processes should be easy enough for all companies to stick to. IPs still see smaller companies having to spend time chasing customers for the money they're owed far too often.
"Late payments put unnecessary strain on the finances of businesses, and can stop them investing in new services, taking on new commercial opportunities or even having enough cash in the bank to cover their day-to-day costs, which can threaten their very viability."
According to R3's UK-wide research, manufacturing (27%) is the sector with the highest rate of businesses that were owed late payments, followed by service industries (22%), retail and distribution (both 13%).
Andrew Watling continues:
“Management teams need to set the right standards when it comes to how they treat their suppliers, and the lessons that Tesco is learning should be absorbed by businesses everywhere.
"When businesses have to wait too long to receive money owed, it can have a harmful effect not only on their own operations, but also further down their supply chain, and entirely avoidable situations can arise that threaten these firms and the jobs they sustain.
"If payment terms are agreed with suppliers, then customers can have no legitimate reason not to stick to them, let alone still owe money thirty days after the initial deadline.
"Improvements have undoubtedly been made across the board over recent years, but there is still considerably more to be done to address this problem, and South East businesses can look to lead the way in adopting best payment practices."
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