Paying small businesses promptly has been a case of smoke and mirrors for a long time, but there were signs from Tesco this month that perhaps the smog is beginning to clear a little.
The groceries code adjudicator Christine Tacon oversees the relationships between the UK’s 10 biggest supermarkets and their suppliers. Earlier this year she stated that “I have reasonable suspicion that Tesco breached the code in two areas. One is reasonable payments and second is payments for better positions on shelf outside promotions.”
Now, on Tuesday 6th October and speaking at the retail industry’s IGD The Big Debate Conference in London, Tesco Chief Executive Dave Lewis, in a statement reminiscent of a poacher turning gamekeeper, announced new policies. These will see smaller suppliers, who deliver up to £100,000 worth of products in a year, paid within 14 days. Medium-sized suppliers who deliver up to £10 million in product value per year, will have their accounts settled five days quicker than larger suppliers in their category.
“…We want to work with our suppliers to get back to innovating on behalf of our customers and these changes will make it easier for us to do that… introducing a new standardised policy across each category for our larger suppliers, and shorter payment terms for our small and medium suppliers will help us to deliver a fairer, more transparent and consistent approach across our supply-base.” Lewis said.
The table here shows the new standard days by product category and supplier sales values.
However, the Independent also published a reminder from the Federation of Small Businesses who in its most recent survey of members found that one in three had seen their growth ambitions thwarted because late payment of bills had hit their cash-flows. In other words, a third of small businesses are paying less tax and employing fewer people than they might be, simply because large businesses are taking them for a ride.
It goes on to point out that the numbers are still going in the wrong direction – statistics suggest large suppliers are getting worse at paying their bills on time and that small businesses are owed more than ever before.
Nevertheless, Tesco’s changes may have repercussions across the whole industry, and prompt Tesco’s competitors or larger suppliers to follow suit, said supply chain expert Ben Gardner of Pinsent Masons, the law firm behind out-Law.com.
“Long payment terms are increasingly likely to be viewed as unjustifiable and unreasonable. This could particularly be an issue where businesses at the top of the supply chain make their payment terms publicly known,” he said.
“If other businesses at the top of the supply chain follow suit Tesco’s lead and publicly announce revised payment practices, this will make any disparity in payment terms throughout the supply chain obvious.
This could lead to challenges and adverse publicity for those that do not flow these revised payment terms down to their own supplier base, particularly SMEs,” Gardner said.
In Tesco’s case, taking the lead could set loose the hounds…
- Tesco slashes payment terms - The Telegraph
- Small Talk: Tesco’s payments promise provides a welcome lead in a damaging scandal – The Independent
- Payment practices could be moving to the heart of corporate social responsibility following UK government action – Pincent Mason
- Tesco simplifies trade terms with suppliers to help innovate for customers – Tesco Press Release
- Tesco payment table
- Tesco admits likely supplier mistreatment - pymnts.com
- Tesco under investigation by new regulator over dealings with suppliers – The Guardian
- Tesco 'to make life easier for suppliers' , as Lewis says sorry - Fruitnet.com