Small Talk: Tesco’s payments promise provides a welcome lead in a damaging scandal

See, it was easy. At a stroke last week, the supermarket group Tesco cut through the nonsense that big businesses spout about paying suppliers. It announced a standardised payments system that from next June will see small suppliers (those who deliver up to £100,000 of products each year) paid within 14 days, and medium-sized suppliers paid five days quicker than the largest companies.

If small business groups, long frustrated by the disgraceful way in which large companies routinely fail to pay their suppliers on time, had wanted one industry to take the lead on this issue, it would have been the retail sector, where supermarkets have often been accused of poor practice. And if they had wanted one particular company to set an example, it would have been Tesco, a company that has been at the centre of a row over how it accounts for payments from suppliers for special offers and the like.

Just to be clear, Tesco is doing no more than it should be. By setting out much clearer timetables for paying its bills, it provides suppliers with the certainty needed for their financial planning. And by committing to paying smaller suppliers more quickly, it recognises that these businesses are more vulnerable to cashflow problems.

Nevertheless, the supermarket deserves credit for its conversion to the cause. The question now is whether other businesses will follow its example.

There are some reasons to be hopeful. We are beginning to see the tide of public opinion turn against large companies that exploit small suppliers by paying late, just as people have become increasingly angry about corporate tax avoidance. The fear of reputational damage is a powerful lever to force change.

The Government’s plans to force big businesses to publish data twice a year on their payment practices will help. From April 2016, the standard payment terms of large companies and the average time they take to pay their bills will be a matter of public record. This will make it simpler to take up cudgels against the worst offenders – to name and shame them into improving their behaviour.

So too would a strong stance from the small business commissioner that the Government has promised to create. One of its duties will be to intervene in disputes over late payments between small suppliers and large businesses. Given the right powers, and the option of public censure for wrong-doers, this service could be a force for good.

Still, the numbers are still going in the wrong direction – statistics suggest large suppliers are getting worse at paying their bills on time and that small businesses are owed more than ever before.

In Tesco’s case, the proof will be in the pudding – and it’s a shame small suppliers are having to wait until next June for the new system.

It’s not just that to treat small suppliers in this way is corporate bullying of the worst kind – though it is – but also that this is causing real damage to our economy. The Federation of Small Business’s most recent survey of members found that one in three had seen their growth ambitions thwarted because late payment of bills had hit their cash-flows. In other words, a third of small businesses are paying less tax and employing fewer people than they might be, simply because large businesses are taking them for a ride.

Small businesses continue to run into trouble complying with the new rules on auto-enrolment, under which every employer must set up a pension scheme for staff, enrol all employees into it unless they opt out, and make contributions on their behalf. City law firm Clyde & Co says the number of whistleblowing complaints made to the Pensions Regulator about firms failing to comply has increased by 33 per cent to 1,985 over the past year.

The launch of auto-enrolment three years ago began smoothly because only large employers, most of which already had pension provision in place, had to comply. However, as more and more smaller employers have come under the system, difficulties have begun to mount up.

“Failing to comply can lead to a daily fine which could severely impact the profitability of many small businesses,” warned Mark Howard, head of pensions at Clyde & Co. “Given that the pensions regulator appears to be ramping up its efforts to crack down on non-compliance, SMEs need to make sure they plan well in advance to avoid any enforcement action.”

M&A activity on the Alternative Investment Market slowed to a trickle during the third quarter, research shows, with fewer deals on London’s junior stock market than in any quarter since the credit crunch. Accountancy firm UHY Hacker Young said there were just three transactions over the quarter, compared with 19 during the same period of last year.

UHY said the slowdown reflected a reduced risk appetite from businesses, given uncertainties in the global economy. It pointed out that the commodity sector, which accounts for a disproportionate number of companies on Aim, had been especially hard hit by this uncertainty, with the prices of many commodities falling sharply.

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