The industry body said it backed plans to force large companies, including the big supermarkets, to be much more transparent about their payment practices.
An insolvency expert specialising in the food and drink industry, meanwhile, has claimed that since it was set up in 2013, the GCA has been completely toothless in enforcing fairer financial practices in the grocery sector. Duncan Swift, a partner at Moore Stephens, claimed that Tacon’s office had investigated less than two per cent of cases involving allegations of unfair purchasing and payment practices by supermarkets.
The GCA was set up with a legal remit to oversee the trading practices of the big 10 supermarkets, and make sure they stuck to a new code of conduct covering, amongst other things, payment terms and contractual obligations.
The move followed a number of well-publicised stories which sparked outrage about the behaviour of supermarket buyers and accounts departments towards small suppliers, with incidents of businesses and lives being wrecked by punitive payment terms and non-payment of invoices.
Three years ago, we ran a story on this blog about a dairy free chocolatier which was forced to issue a winding up petition against Tesco after non-payment of an invoice left the firm unable to pay staff over Christmas. This was a year after the GCA was set up.
The GCA now appears not only toothless, but out of touch. Tacon’s comments fly in the face of all the latest research on the topic. Yet another report, this time by Siemen’s Financial Services, has underlined the scale of the problem facing SMEs, suggesting small businesses lose £250 billion a year in cash flow from unpaid invoices, amounting to 14% of turnover.
Levelling the Playing Field
There is also something disingenuous about Tacon’s comments. In the grocery sector in particular, the issue is not just invoices going unpaid, but the length of the payment terms the big, powerful retailers force onto suppliers. There seems to be a culture amongst supermarket buyers of viewing the longest possible payment terms as delivering a ‘competitive advantage.’ And whilst terms or 90 or even 120 days might suit the big players, for small suppliers, it makes cash flow management virtually impossible.
The GCA has done nothing to curb this issue, and it appears the government has woken up to this too. The Department of Business, Energy and Industrial Strategy is currently undertaking a statutory review of the GCA. Hopefully that means the government is coming to its senses, and will realise the late payment culture just cannot be tackled with arbitrary regulators. Why would the supermarkets listen to an adjudicator who has nothing to threaten them with should they choose not to comply?
The only solution to rescuing the billions of pounds owed to our SME suppliers, and levelling the playing field on payments, is to strengthen the statutory rules on payment and the consequences for not abiding by them.