Tesco slashes payments terms to 14 days for small firms

The supermarket giant will pay its tiniest suppliers in just two weeks, but larger companies will still have to wait up to 55 days

Tesco has announced plans to slash payment terms for smaller suppliers by half, to help usher in a new era of transparency and fairness at the supermarket giant.

Its smallest suppliers, selling products worth £100,000 or less in a year, will receive payments within 14 pays, chief executive Dave Lewis revealed today. This is down from the industry standard of 28 days.

Speaking at the retail industry’s IDG Conference on Tuesday, the Tesco boss claimed that payment terms would be standardised and simplified over the next nine months.

“One of the things that made Tesco great was the little things we did to help our customers,” he said. “We want to work with our suppliers to get back to innovating on behalf of our customers and these changes will make is easier for us to do that.”

Larger suppliers, selling up to £10m-worth of products into Tesco each year, have also had their payments terms improved. The supermarket has shaved five days off the industry standard.

The amount of time that Tesco will take to pay up varies widely by product category: sellers of fish, meat, fruit, and vegetables will be paid within 23 days, while companies supplying wine, beer and spirits, or clothing and merchandise, will still have to wait 55 days.

A spokesman for Tesco said that the longer wait for alcohol and clothing companies reflected the non-perishable nature of the products.

Small companies offering chilled, convenience or frozen food will be paid within 30 days, the same for pet food. It will take 35 days to pay dairy suppliers, while Tesco requires 40 days to settle invoices from bakery, grocery, household, health and beauty businesses.

 

Product category Standard number of payment days Tesco’s new payment terms for suppliers selling less than £10m-worth of products Tesco’s new terms for suppliers selling less than £100,000-worth of products
Fruit, veg, meat, fish and poultry 28 23 14
Chilled, convenience, frozen and pet care 35 30 14
Dairy 40 35 14
Bakery, grocery, household, health and beauty 45 40 14
Wine, beer and spirits 60 55 14
Clothing and general merchandise 60 55 14
Clothing and general merchandise sourced from overseas 90 Not revealed Not revealed
Goods not for resale (procurement) 45 Not revealed 14

The supermarket has been criticised for its treatment of suppliers for a number of years and in June this year Tesco topped a Groceries Code Adjudicator list for supplier complaints.

Some 30pc of the 1,000 supermarket suppliers surveyed said that Tesco rarely complied with the Groceries Supply Code of Practice, while 4pc said that it never complied. Only frozen food retailer Iceland received a worse score from its suppliers.

In February, Tesco emailed its suppliers demanding price cuts because of the slide in commodity markets and threatened to withdraw products if suppliers refused to capitulate, prompting an industry backlash.

“By introducing a new standardised policy across each category for our larger suppliers, and shorter payment terms for our small and medium suppliers, it will help us to deliver a fairer, more transparent and consistent approach across our supply base,” Mr Lewis said.

“We are pleased to see Tesco has listened to our arguments and made improvements to its payment practices towards its smaller suppliers,” John Allan, national chairman for the Federation of Small Businesses, said of Tesco’s new payments policy.

“The new standardised and clearly defined payment terms should provide a far more reasonable payment framework for small firms. It will allow them to have more confidence when doing business, giving them the ability to plan ahead more effectively. We hope today’s announcement will go some way to easing the pressure on the supply chain and that other big companies will make similar changes to their payment terms.”

Tesco, which works with 1,800 small UK suppliers, will make no financial gain from the changes, it claimed, and in fact estimated the cost of implementing the changes at £231m.

Keith AcAvoy, co-founder of craft beer start-up Seven Brothers, was offered a listing with Tesco earlier this year but turned down the opportunity. These new terms will encourage more small suppliers to consider doing business with the grocer, he claimed.

“This would most definitely affect our decision to move forward with the Tesco offer,” he said. “We’re a new company and cashflow is one of our biggest foes. It would be incredible if Tesco became of the quickest to pay invoices. Normally with such an organisation we could be waiting 90 days for invoices to be paid. This definitely changes things.”

Story courtesy of Telegraph News

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Jay Naylor

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