Supermarkets have been accused of 'bully boy tactics' by offering their suppliers bank loans instead of swiftly settling their debts. Chains including Morrisons and Marks & Spencer have introduced schemes that delay the payment of invoices to small businesses that supply them with goods. The suppliers have to wait up to a month longer to have their bills honoured, but if they cannot hold on this long, the supermarkets offer them access to credit from a bank. It pays the money earlier than the supermarket would – but charges interest on the loan. Supermerket chains have introduced schemes that delay the payment of invoices to small businesses meaning many farmers will face a cashflow crisis . Critics say such schemes force small firms to pay through the nose to get money that should have been handed to them promptly in the first place. Phil Orford, chief executive of the Forum of Private Business, said last night: 'This is yet another ethical deficit at the heart of some of Britain's most well-known companies. Their apparent collusion in this area threatens to break the backbone of the UK economy – small businesses.' Morrisons, for example, has a 'supplier finance' scheme with Lloyds Bank. Under arrangements introduced late last year, most of the supermarket's suppliers have been persuaded to wait 90 days for their invoices to be paid, a month longer than previously. Those that cannot hang on that long are directed towards the deal Morrisons has drawn up with Lloyds. The bank will give them their money sooner in the form of a loan. Morrisons has a 'supplier finance' scheme with Lloyds Bank. The bank can give suppliers  their money sooner in the form of a loan . Lloyds earns interest charges, Morrisons keeps the cash it owes in its coffers for longer – and the firms pay to get their money. A Morrisons supplier, who wished to remain anonymous, said it is the latest example of big business using 'bully-boy tactics' to make an extra profit. The practice is legal, but the supplier said it can be the difference between some small businesses surviving or failing. Mr Orford said: 'There is a growing trend for large businesses to use supply chain finance to extend payment times and pass the cost of credit down to their suppliers. 1 A supermarket decides to buy apples from a farmer and agrees to pay him £10,000 every month. 2 A year into the contract the supermarket says it is keen to work with the supplier for another 12 months – but rather than settle the invoice monthly it would prefer to hang on to the cash for longer and delay payment to 90 days. 3 The farmer doesn’t want to upset the supermarket but suddenly finds himself with a cashflow issue – if he can’t pay his bills his business could collapse. 4 The supermarket comes up with a solution. It has devised a scheme with a bank that means the farmer can get paid even quicker than 30 days but at a cost. A bank will pay the money owed in the form of a loan, but will take a fee for providing the cash ‘early’ – typically interest of 1.2 per cent, or £120 per month. 5 So the farmer only receives £9,880 rather than the £10,000 he is owed. 'This is a process which, whilst reducing their own costs, also makes money for the bank supporting the scheme.' The finance deals are not compulsory, but many suppliers feel it is an offer they cannot refuse for fear of losing business. One supplier, who asked for anonymity, said Morrisons and others are being opportunist introducing the schemes at a time when interest rates are low. He said he fears they will rocket when borrowing costs start to rise, but by then small firms will be locked into costly deals. Morrisons' deal with Lloyds allows the supplier to receive payment earlier if they pay interest at 0.75 per cent above the Libor benchmark rate, currently 0.27 per cent, meaning a charge of 1.02 per cent. Other grocers offer similar schemes, but they are not tied to suppliers agreeing a lengthening of payment terms. Marks & Spencer offered a scheme with HSBC and Royal Bank of Scotland, offering borrowing rates of 0.95 per cent above the Libor rate. M&S increased the waiting time for suppliers before their bills are settled from 60 days to 75 for clothing and 'general merchandise' in 2013. Food suppliers wait between 19 and 39 days. Morrisons said: 'If suppliers don't want to take part, they don't have to.' Lloyds said the deals let suppliers get cash at low cost, and helps businesses to 'free up capital to invest in their business'. Marks & Spencer said: 'We have only received positive feedback from suppliers that participate.' Sainsbury's, Tesco and Asda also offer similar schemes, but Waitrose does not.
Morrisons and M&S have introduced schemes that delay invoice payment . Supermarkets have been accused of 'bully boy tactics' by offering loans . Suppliers have to wait up to a month longer to have their bills honoured . But if they cannot wait  supermarkets offer them  credit from a bank .