How big business bullies its suppliers into lending

Late payment is a major problem for freelancers and small firms and it seems to be getting worse. Big businesses are effectively banking with their suppliers’ money - so will government step in?

Arnab Dutt, owner of manufacturing company Texane, is scathing of government measures to date. "So far, nothing the government has done in terms of legislation has seriously impacted this disgraceful scenario."

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Money for something | The Manufacturer

“The reaction of banks to the financial crisis was to cut back on lending and to rebuild their balance sheets,” Arnab Dutt observed, but he is not convinced that things have moved on – at least, not sufficiently. 

“Their lending criteria does not appear to have changed. It isn’t nuanced and they still don’t understand business. Five years on from the crisis in the UK, the system for small businesses hardly seems to have changed at all.” 

He has not seen evidence that the high street banks have the same level of commitment as in “the old days”, the time that he describes as ‘proper banking’. It would appear that the main banks have a challenge on their hands, in convincing people like him that they really do mean business. But he sees positives from the situation.

“It has led to a huge growth in asset finance,” Dutt said. “The thing about it is – with asset finance, they have security: the finance company owns the machine till they have received the last payment. The lenders may not want to commit less than £150,000 but businesses can borrow at rates that are historically rather good. It makes sense and it is a good way of making capital investment.” He went on to say thay he is seeing lots of smaller companies going for asset finance and readily agrees that it is, in effect, hire purchase. But where do companies go for less than £150,000?

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Small businesses need more competitive banks

I was recently invited along with a number of other small business owners to the Office of Fair Trading, which is writing a report on competition in the banking sector. The OFT wanted to consult with smaller firms about the banks. 

Had we seen their behaviour change since the crisis of 2008? Were they providing the small business sector with the service they needed?

This is not the first time there has been an investigation into competition in the banking sector. Back in 2000, the Cruickshank report identified a lack of it, and the truth is there has been little progress since then. The way the UK banking industry is structured impacts on the ability of small and medium firms to get the very best service compared with their international competitors. That is of great concern.

The financial crisis and the subsequent banking scandals have demonstrated that we are a long way from an effective system. The old problems that work against a competitive environment remain, such as the inability for businesses to switch bank accounts quickly and easily.