It is a similar mentality to the Global business who will go to extreme lengths to avoid contributing to society by paying their taxes.
If you owe millions to your suppliers and you can retain that money beyond the payment terms you have the opportunity of earning money from that money which increases your profitability.
Small companies find it impossible to chase these large companies who’s spending power they can use as a threat to bludgeon the little supplier into submission and their teams of lawyers to avoid being sued.
This, (like, in my opinion, tax avoidance) is not good business practice it is simple straightforward theft. You are earning income from money that does not belong to you and £1,000 owed to a small business is far more important to that business than it is to some huge global corporation.
One solution would be to recognise the potential criminal implications of what used to be called ‘Obtaining a pecuniary advantage by deception’ which appears to have moved from the Theft Act 1968 to the more recent Fraud Act. Why are some of these individuals (as with our banks) not being arrested and prosecuted under the Criminal Law, rather than forcing small businesses to try and take on large companies in the civil courts?
If one or two CFOs found themselves having their ‘collars felt’ on a regular basis by your local CID officer who would drag then down to the police station and charge them with criminal offences, we might find they respond more readily than to a stiff letter from the small company’s solicitor.
Politicians have recognised this problem for years and paid lip-service to trying to do something about it with minimal success, but like everything that relates to huge corporations, government would prefer to ring their hands and try to rely on some self-regulation that hopes the large company will regulate themselves.
This is of course nonsense. You simply have to look at our Banks to see they have no moral compass or appreciation of what is fair and just so in a civilised society the State would act.
Here’s an idea.
Any small business who is registered for VAT and who does business with any company with a turnover in excess of £50 million must record on their VAT return all amounts owed to them by such companies which is in excess of their payment terms, thus making it a legal requirement for the small business so not something their global customer can bully them out of doing.
If their is a genuine dispute over the payment the large company will be obliged to register an official ‘Notice of Dispute’ with the small business.
If no such ‘NOD’ exists, HMRC will impose a fine, payable immediately of the amount outstanding plus a 50% penalty fee – the outstanding amount due plus 50% of the penalty will be immediately paid to the small business HMRC will retain the other 50% for the public purse. The fine will continue to accrue at the rate of 10% per day for every day it remains outstanding.
Any fraudulent issue of a ‘NOD’ by the large company later discovered will be treated as both a criminal and a civil offence so that the Company pays a punitive fine and the individual responsible (I suggest the CFO) will commit a criminal offence.
That would work wouldn’t it?