Squeezing the supplier is easy credit
One of the symptoms of a credit squeeze is that credit is squeezed. This statement of the obvious is suddenly becoming evident to several parties who thought the crunch did not apply to them.
The Federation of Small Businesses is complaining that big companies are taking longer to pay their bills; tenants are demanding to pay their rent monthly in advance instead of three months ahead; shareholders are objecting to dividend cuts or payments in shares rather than cash. Perhaps there will be stories of delayed wage payments next?
When credit is tight it is not surprising that those making payments want to squeeze their suppliers by sitting on invoices and that those waiting for payment want it earlier. The FSB correctly complains that when large companies delay payment to small firms by more than 100 days they are using its members “ as an unofficial source of credit”.
Credit terms ought to be a point of negotiation alongside any other aspect of a contract. And when the parties are equally balanced, that results in a fair deal. Many of the retail chains objecting to paying their rents so early are bigger than the landlords they are lobbying: if they felt so strongly about it they could try insisting on monthly advance payments when signing their lease, but mid-tenancy is not the time to re-open the terms.
However, there is scope for abuse. If a company made employees wait for their wages there is little the workers can do if they want to hang onto their jobs, and if a large customer tries to vary the payment terms to a small supplier, the latter is likely to agree, reluctantly, for fear of losing the business altogether.
The legislation allowing small companies to charge interest on late payments was thus well-meant but futile. Big buyers still have clout over small firms when sales are hard to complete.
