The impact of late payments reverberated right down the food and drink supply chain, affecting more than just the two businesses directly involved, Charlotte Chung, ACCA's senior policy adviser on small and medium-sized enterprises (SMEs) issues told FoodManufacture.co.uk.
“Food and drink firms operate in a complex and highly fragmented industry, dominated by SMEs,” she said. “It isn’t unusual for a business operating in this sector to work with lots of buyers and suppliers, of varying sizes, which typically leads to huge diversity in payment terms.
“This, along with the high frequency of transactions, in particularly when dealing with perishable goods, makes it very difficult for small food and drink manufacturers to accurately manage their cash flow – an important feature of business planning for smaller enterprises looking for growth.”
Late payment increased costs, reduced capital spend for small firms and put suppliers at risk of going out of business, Chung claimed.
“Unsurprisingly, it is the headcount and investment decisions of smaller businesses that are most sensitive to late payment,” she said.
“Late payment and customer defaults can cascade down the supply chain, crossing industries and borders until they reach the most financially secure financial institutions, which in many cases involves the government.”
Compared with large businesses, ACCA found the effect of late payment on small businesses that wanted to expand was significantly greater, by 54% and 47% respectively.
The ACCA report claimed businesses with fewer than 50 employees were typically twice as likely as large firms to report problems with late payment.
Not always negative
But Chung was keen to point out that late payments were not always a negative thing and that any new legislation should take that in to consideration.
“It can also be a useful tool for business growth,” she said. “Only when this complexity is understood can appropriate responses will developed to address the aspects of late payment which do impact negatively on businesses.”
The Federation of Small Businesses said late payments were clearly a problem that was felt throughout the entire food supply chain.