GlaxoSmithKline admits to paying its vendors late

GlaxoSmithKline has admitted to paying hundreds of small suppliers late — an admission that comes nine years after the company had committed to a "fast payments" code.

The late payments from the pharmaceutical giant have hit suppliers that have now been moved to 30-day terms, after terms had been stretched to 90 days, in at least some cases. However, some suppliers are afraid of asking for faster payments in case their contracts are terminated.

And it has now moved more than 600 suppliers to terms where payments arrive within 30 days. The remaining companies will be switched next year, according to financial website This Is Money.

This is a problem affecting small companies as their big business clients hold the power in the relationship and can terminate the contract. The big businesses can also squeeze suppliers to make their own balance sheets look healthier, according to Mike Cherry, chairman of the Federation of Small Businesses.

In addition, the business must describe its payment terms, dispute mechanism and any supporting services it offers, such as e-invoicing or supply chain finance.

But this kind of transparency is difficult for a lot of companies. Bankrupt construction giant Carillion signed up to the Prompt Payment Code in 2013, but it was notorious for not paying its suppliers on time.

Baroness Burt of Solihull questioned in Parliament why the prompt payment code has not solved some of the late payment issues.

She said: "Because it is a voluntary code of practice, it has largely failed to protect supply chains from late payment; it needs to be given more teeth. The AAT comments that the code has been undermined by the fact that the signatories to the code basically fall into two categories: those who already took this issue seriously and those who believe that, as it is voluntary, it does not have to be taken seriously. Carillion falls into the second of those categories."

GlaxoSmithKline, which is also a signatory of the Prompt Payment Code, has a history of not paying its suppliers within a preferable 30-day period. In 2013, the pharmaceutical company changed its previous policy of paying supplier invoices 60 days from the time they were received to up to 90 days.

The Forum of Private Business then called GlaxoSmithKline’s action "morally bankrupt".

Robert Downes, spokesperson for the organisation, said: "What makes the GSK case all the worse is the sheer size and profitability of the firm - the fourth biggest pharmaceutical company on the planet. This is not a business struggling to make its way in the world."