The Forum of Private Business (FPB) is naming and shaming the retail giant Matalan, which is imposing a 2% deduction on all payments to suppliers from 1 September 2008.
The company intends to use the money it saves to pay for TV advertising, and other marketing and PR activities. The FPB has entered Matalan into its hall of shame, which identifies companies which seek to cut costs by squeezing their suppliers.
Also at the expense of its suppliers, Matalan plans to expand retail parks, develop international franchises, expand its online business and refurbish stores. Writing on 17 July, the companys Buying Director, John Lyttle, told the FPBs members the retailer would impose the charge to fund drive efficiencies and prepare for future growth. Mr Lyttle promised suppliers: "The benefit from the above expansion will generate increased business, and I hope that you will participate in this growth."
However, the FPBs Chief Executive, Phil Orford, said that the FPBs members supplying Matalan would disagree.
"This is not the first time that Matalan has passed on costs to its suppliers and it represents a payment problem that is endemic across a number of industry sectors," said Mr Orford. "The fact that this latest charge is being justified to fund initiatives like marketing and international expansion adds insult to injury for many smaller firms, which are struggling to control essential costs as the economic downturn continues."
He added: "I feel sure that many suppliers are already asking why investment can't be funded by the substantial increase in profits recently announced by Matalan. The FPB took Matalan to task two years ago for imposing a similar charge which, it insisted, was a one-off. Clearly, Matalan has an ongoing policy of blatant and sustained abuse, using its size and power to make more money at the expense of its supplier base."
In 2006, the FPB wrote to the Government and Matalan to protest against its imposition of the mandatory supplier discount, which was also set at 2%. Shortly before, the retailer had posted a pre-tax profit of more than 36 million. In June 2008, Matalan posted a pre-tax profit of 53.2 million; almost double the figure for 2007.
One supplier, Raymond Frankle, of Frankle Trimmings in London, became so frustrated with the 2006 charge that he broke ranks and spoke out, despite fears that Matalan could withdraw its business as a result.
"We didn't agree to the deduction and very shortly afterwards the company stopped dealing with us," said Mr Frankle. "It won't take out new orders, but neither will it pay back the deduction from our 2005 orders. The thing that hurts me the most is seeing its high-profile advertising campaigns and I am not prepared to let my money pay for them."
He added: "You enter into a contract and deliver the goods, so it is not unreasonable to be expected to be paid for them. Agreement to a change of payment terms should be reached by both parties, not just one."
It is understood that Matalan does not plan to introduce the latest 2% charge retrospectively, but some of the FPBs members are concerned that it will apply for goods they have already delivered.
The FPBs adviser on payments, Stuart Blake, encouraged Matalans smaller suppliers to make themselves aware of their rights under law, including those contained in the Late Payment of Commercial Debts (Interest) Act, which came into force in 1998, following a 15-year campaign by the FPB.
"A change to contractual terms cannot be made unilaterally. This is a simple matter of contract law," he said. "Suppliers receiving underpayment on deliveries made under contracts agreed before the date of this letter will automatically be entitled to interest under the terms of their original contracts or under the LPCD(I) Act and, if their entitlement stems from the LPCD(I) Act, they will be entitled to a late payment penalty charge as well, assuming their contract post-dates August 2002."
Mr Blake added a note of caution: "Suppliers should be careful about fulfilling orders received after this letter was sent, since to do so may indicate acquiescence, and therefore acceptance, of the new terms the letter seeks to impose."
He said suppliers should emphasise to Matalan that they will only provide goods on the original terms agreed, or try to negotiate new terms that are more favourable, but warned that the company has an absolute right to place no further orders with them.
The FPB is protesting against the late payment of small firms by large businesses as part of its Think Smallest First campaign, in addition to the practice of imposing unilateral changes of payment terms that leave smaller suppliers struggling.
Following a survey of its members, the British Home Enhancement Trade Association (BHETA) found that, while suppliers are facing an average price rise of 18.5% on their products, they are only realising an average price increase from retailers of 5.8%.
"Some members are dealing with price increases of up to 100% on steel products, and anything between 8% and 50% on other types of products," said Pam Plant, a director of the BHETA. "On average, raw material costs have gone up 11%, energy costs are up 6.5%, labour costs are up 4%, and logistics and distribution costs are up 5% across the board and retailers still continue to ask for additional support, up, on average, by 2.6%."
The FPBs Hall of Shame can be found at www.fpb.org/hallofshame.
The FPB now has an online discussion forum, on which people can share information, join the latest debates affecting small businesses in the UK and vote in online polls. Visit the forum at www.fpb.org/forum.
About the Forum of Private Business
The Forum of Private Business (FPB) was formed in 1977 and fights on behalf of private businesses. The FPB represents approximately 25,000 UK-based businesses, which in turn employ in excess of 600,000 people.
The FPB also provides a range of business services aimed at increasing member efficiency and profitability.