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Unreasonable Payment Terms Damaging SMEs

In recent months, a number of large and multi-national companies have been heavily criticised for taking advantage of small and medium sized businesses (SMEs) in their agreements. The imposition of unreasonable terms and conditions can cause substantial damage to SMEs and may risk putting them out of business.

In the last week the BBC reported that AB InBev, a major global beer brewer, has been imposing payment terms of 120 days in its agreements with smaller suppliers. 2 Sisters, a leading food manufacturer, has also imposed payment periods of 120 days, with a term that they will become eligible for a 3% discount if they pay within 90 days.

These payment periods have been criticised as being entirely unreasonable for reasons that include a failure to take into account the practical realities of how SMEs operate, including their lack of disposable income with which to pay salaries and other liabilities.

The BBC further revealed that Premier Foods, a major food manufacturer, used ‘pay-and-stay’ arrangements with suppliers, under which it would charge suppliers to continue doing business with it. These terms were highly controversial, with negative media attention forcing the company to backtrack on its policy.

Unfortunately, such problems are not isolated to these few examples. Disreputable payment practices are widespread and cause real problems for smaller businesses. Large enterprises commonly get away with imposing unreasonable terms and conditions by hiding them in lengthy documents or using legal jargon to disguise their intentions. Many small businesses fail to notice or to fully appreciate the effects of such terms.

However, SMEs should be encouraged not to be daunted by large and multi-national businesses but rather to seek expert legal advice and support to identify risks and protect their interests.  Support can range from advising on standard terms and conditions being sought to be imposed on the SME to negotiating more beneficial or balanced terms.

Katherine Niccol is a Group Litigation Solicitor at Slater and Gordon Lawyers UK.

For more information call Slater and Gordon on freephone 0800 916 9015 or contact us online.

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