Concerned suppliers have warned they are approaching breaking point as retailers pile on the pressure to keep their prices low, despite rising costs.
Several suppliers who spoke to Drapers as part of a wider investigation said their relationships with retailers have hit an all-time low as the weakness of the pound compounds historic challenges.
“Pressure on pricing has been going on for as long as I can remember but the huge swing in the exchange rate has made it nearly impossible to make any margin at all,” said the founder of one large supplier. “Some buyers understand that but others say they will only accept increases of 5%-8%. Only strong suppliers can say ‘OK, goodbye’ to that and suppliers don’t stick together.”
The supplier added: “If you push and push a factory, goods will just be moved offshore, which can create ethical issues. There will always be somebody who says I’ll do it for cheaper, but it can’t get any cheaper unless you’re not being scrupulous.”
Suppliers also pointed to difficulty communicating with retailers, arguing it is increasingly difficult to meet face to face to solve issues and said buyers often misunderstand how to work effectively with their supply bases.
Drapers’ findings come as the government this week confirmed that large companies will be forced to disclose the average time it takes them to pay suppliers.
The Department of Business, Energy and Industrial Strategy has released new guidance on measures due to come into force in April this year, which will make failing to report the information twice a year a crime punishable by a fine.
The legislation will apply to businesses that meet two or more of the thresholds to qualify as a mediu- sized company under the Companies Act 2006. These are: a £36m annual turnover, £18m total balance sheet or 250 employees. No company will be required to report in its first financial year.
Businesses will need to report on the standard length of time it takes to pay invoices, as well as any changes made to standard payment terms and how this has been communicated to suppliers. Statistics on the average number of days taken to pay suppliers and the percentage of payments made within 30 days or fewer, 31 to 60 days and 61 days or longer will also be required.
Small business minister Margot James said the estimated £26.3bn currently owed to small businesses in late payments was “unacceptable” and that the guidance would help larger companies fulfil their responsibilities.