Shadow business secretary expresses concerns over move to extend standard payment terms to 120 days
Anger at Carillion鈥檚 120-day payment terms Carillion came under fire this week over its move to extend its standard payment terms to 120 days, with MPs condemning the move as 鈥渁ppalling鈥� and an 鈥渁buse of its position鈥�.
Last week, 黑洞社区 revealed the firm had extended its payment terms to 120 days and is implementing 鈥渞everse factoring鈥�, a financial mechanism that allows suppliers to be paid early if they pay a charge to the bank.
Carillion says that the scheme is optional and that it is offering to reimburse suppliers for the bank charges to ensure they are no worse off. The company says the system is aligned with the government鈥檚 Supply Chain Finance scheme 鈥� itself a form of reverse factoring that is aimed at easing cash flow through the supply chain.
But Labour鈥檚 shadow business secretary Chuka Umunna (pictured) said the suggestion Carillion may be using the government鈥檚 finance scheme to 鈥減erpetuate late payment鈥� was 鈥渨orrying鈥�. 鈥淲here large firms are abusing their position to give suppliers increasingly unfair payment terms 鈥� effectively forcing their suppliers to bankroll them 鈥� this is an unacceptable practice and must be stopped,鈥� he said.
I would urge Carillion to think again or risk losing business from government
Robin Walker MP
Conservative MP Robin Walker, a member of the business select committee, said it was 鈥渆xtraordinary鈥� for the firm to be extending its payment terms when 鈥渙ther firms are bringing them down鈥�. 鈥淚 would urge Carillion to think again or risk losing business from the government in the future,鈥� he added.
Labour MP Alex Cunningham said he was 鈥渁ppalled鈥� by Carillion鈥檚 actions and would be raising the issue in parliament, while fellow Labour MP Debbie Abrahams, who campaigns on fair payment issues, also condemned the plan.
鈥淚t remains to be seen if Carillion really will ensure that their SME suppliers are compensated in a timely fashion for the bank charges they will be forced to pay by this arrangement,鈥� she said.
A spokesperson for the Department for Business, Innovation and Skills, would not comment on Carillion鈥檚 scheme, but said Supply Chain Finance 鈥渟hould not be used as an alternative to prompt payment鈥�.
This week Carillion defended the scheme with a statement on its website after the news prompted a campaign on social media site Twitter, with users promoting the hashtag #DontWorkWithCarillion to express their views.
Carillion confirmed that payment in 120 days was now its 鈥渟tandard terms鈥�, but said that some small suppliers got paid earlier. 鈥淲e have a very wide range of payment terms which are negotiated with all of our suppliers on an individual basis,鈥� the firm said.
Carillion said around 120 firms had signed up to work under the new system, with a further 50 in the process. 鈥淭he feedback has been very positive,鈥� the firm said.
A legal challenge?
Carillion鈥檚 payment system could be open to legal challenge, lawyers suggested this week. Lawyers said the move to 120 days payment terms could be challenged under the amended Late Payment of Commercial Debts Regulations, which were introduced on 16 March.
Nick Goldstone, partner at law firm Davenport Lyons, said the 鈥渁cid test鈥� would be whether the payment terms were 鈥済rossly unfair鈥� as defined under the Late Payment of Commercial Debts (Interest) Act 1998.
Under the legislation the terms must be considered 鈥済rossly unfair鈥� by a judge, who would look at what is good commercial practice and whether it deviates from 鈥渇air dealing鈥�.
The judge would also consider whether there is an 鈥渙bjective reason鈥� to deviate from the regulations, which stipulate that payment terms should not exceed 60 days.
A Carillion spokesman said as its new payment terms were 鈥渙ptional鈥� and gave 鈥渋mproved payment terms鈥� it was 鈥渉ard to see how there could be a challenge to [the] arrangements鈥�.
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