When the banking crisis hit in 2008, I remember that feeling of panic. Was our cash safe? Would we be able to pay the 20,000 people on our payroll that week? Missing a payroll was unthinkable.
Like many other businesses across the UK, we learnt a lot from the crash. It changed the way we do business and how we store our money. We now keep our cash in more than one bank, so that we can be completely sure that we’ll always be able to pay our temporary employees, contractors and suppliers. This was the lesson of 2008.
When I heard about the impact of the demise of Carillion on the large number of small companies caught up in its supply chain, I was angry and frustrated.
The lesson of 2018 must be that we put an end to 90-day payment terms, which run the risk of sending so many good businesses under.
Enough is enough.
At REED, our policy is to pay our suppliers within 30 days. And in the absence of a compelling case to the contrary, we refuse to do business with anyone who has payment terms longer than a maximum of 45 days. As a result, in the past we have challenged or declined requests for what we consider are unreasonable payment terms with some of Britain’s biggest and best known companies, all of whom stipulated payment terms of “end of month, 75 days” which is effectively 90 days, just like Carillion.
In the past REED supplied Carillion with a substantial temporary workforce. When their payment terms became unfair and unreasonable we stopped. We were lucky that as a company we were big enough to be able to do this. For this reason, and this reason alone, our exposure to the Carillion crash was limited to €20,000 in Ireland. I wish I could say the same for other businesses that have been caught up in this mess.
Other big UK corporates should take note. Insisting on 90 day payment terms is a crappy approach to people who have supplied goods and services to you in good faith. The Chief Executives and Finance Directors of those companies that still pursue such policies – you know who you are – should look in the mirror and think again. Richard Howson, the former Chief Executive of Carillion, famously owned a smart ski chalet. There’s no good reason that I can see why it should take an entire ski season for his company and others like it to pay their bills.
At REED, we’ve been fortunate because we were able to say no. But for many small businesses, the situation is much worse. They’re often forced into situations where if they are to do business at all they must say yes to less than desirable terms and, as we see now, they’re often hung out to dry. In the case of the suppliers to Carillion their debt is now three or four times as big as it would have been if they’d been paid in 30 days. For a lot of small companies, this can make the difference between staying in business and going bust.
What’s more, by consistently extending credit to big corporations and starving themselves of cash, small businesses are left with less money to invest in growing their own organisations, improving their products and services, developing their people and creating new jobs. It’s bad news for small businesses and it’s bad news for the local economies they often serve.
So, my message to big business is stop “Doing a Carillion!”
These big companies that dictate 90 day payment terms to smaller companies are no better than bullies. And the best way to deal with bullies is to stand up to them.
We must collectively resist this unacceptable business practice.
We should coin and use the phrase “Doing a Carillion” to shame and embarrass those companies that see fit to behave like them.
Small businesses are the backbone of the UK economy. I urge other businesses – and business leaders – to stand up and protect them from suffering at the hands of the high profile companies calling the shots.
By giving this behaviour the pariah status it deserves, bullying companies, with unreasonable payment terms, will be called out for the commercially and socially unacceptable practice this is.
“Doing a Carillion” should be the commercial equivalent of drunk driving: selfish, damaging to others and socially unacceptable.
It doesn’t have to be like this. If we all refused to deal with them, they would have no choice but to stop “Doing a Carillion”.