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The Analysis News & Opinions

Brewer praised for payment practices


Insolvent debtors affecting 6% of UK businesses

More than 100,000 UK businesses were owed money by suppliers or customers entering an insolvency procedure during the last year, according to our research. In total, 113,000 businesses, about 6% of

all UK businesses, were creditors in an insolvency procedure in 2015. This leaves growing businesses, particularly

One of the world’s biggest brewing companies has been removed from a ‘naming and shaming’ list after it was found to have improved its payment performance. Diageo was taken out of the Forum of

Private Business’s (FPB) ‘hall of shame’ because it had “taken sufficient steps to improve payment terms”. Diageo has now committed to a maximum

60-day term for SMEs in the UK and has put in place a supply-chain finance scheme where the interest has been reduced to 1% above Libor from 1.5% due to supplier demand. This was seen as a remedial measure for those on 60-day payment terms. It has committed to give a response to any

irregularities within a submitted invoice within 48 hours and no hidden extras, such as supplier fees or discounts, will be forced on suppliers for the marketing of products. Diageo is a member of the Prompt

Payment Code and has reaffirmed that it undertakes its obligations as a signatory seriously. It has provided the FPB with a list of suppliers to contact for an independent assessment of the supplier relationship and the FPB has also taken soundings from some of its own members. Ian Cass, managing director of the FPB,

said: “Clearly we needed a carrot-and-stick approach to late payment so that firms, once they have been put into the hall of shame then have the incentive to change their ways.

February 2016 “We are working very closely with the

Chartered Institute of Credit Management and other trade associations to work on non- regulatory methods to reinforce the supply chain, as we feel that this is a major advantage that Germany, for instance, has over the UK. “That way the government and the future

Small Business Commissioner can focus on regulatory improvements. For us, making all businesses pay within 30 days (ideally at a European level) would make sense as our members have to pay HMRC and others within 30 days, and so government getting its current suppliers to pay its supply chain fairly would be significant.” Ruth Evans, chief executive of industry

trade association BFBi, added: “The brewing industry benefits from the strong relationship afforded by many independent and regional brand owners with their supply chain. In recent years, many of the larger brewers have challenged the sustainability of the chain by increasing payment terms to levels of 120, 150 and even 180 days, which in turn puts pressure for others to follow. As one of the largest brand owners, Diageo is making a strong statement, which we hope others will follow. “BFBi is concerned with the implications

of InBev purchasing SABMiller. SABMiller is viewed, in general, as supporting a sustainable supply chain. However, the supply chain’s experience with InBev, in relation to payment terms, is not positive.”

medium-sized ones, as the most at risk of being exposed to others’ insolvencies. Although the UK insolvency regime is ranked as one of the best in the world, it is often the case that those owed money in insolvencies will not see all of their money back. This can have a serious impact on their own finances. Credit control can be a real problem for

smaller businesses. They might be selling goods or services, but it can be difficult for a small or growing business to make sure it actually collects what it is owed. When you have a small company exposed

to more than five different insolvencies, there is a cause for concern. There could be real cashflow issues there. Businesses need to be savvy about who

they trade with. If a business is not paid up-front or on delivery, or pays in advance for its own supplies, it is essentially lending money to those with whom it is trading. This sort of ‘lending’ does not have the same protection in insolvency situations that secured lending, like a mortgage, enjoys. Debts are repaid in insolvencies according to

a strict hierarchy set out by the government. Creditors in an insolvency process need to

engage with the insolvency practitioner or Official Receiver involved as soon as possible once the insolvency begins. Those in this position are accountable to

creditors and will represent their interests. The more communication there is, the higher the chance of a better return.

Phillip Sykes President, R3


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