Diageo under fire for extending payment terms to 90 days

Will Green is news editor of Supply Management
27 January 2015

Drinks company Diageo has been criticised for extending payment terms from 60 to 90 days in new contracts.

Diageo has written to suppliers to say that from 1 February it is moving to a “new procurement process for future tenders”, which includes the different payment terms.

The Forum of Private Business (FPB) said Diageo was using a government supply chain finance scheme “to cover poor payment practice” and it is calling for Diageo to be removed as a signatory to the Prompt Payment Code.

Under the finance scheme large firms notify a bank that an invoice has been approved for payment. The bank then advances 100 per cent of this sum to the SME supplier in question at a lower interest rate based on the large company’s credit rating.

Phil Orford, chief executive of the FBE, said: “The practice of big businesses using a supply chain finance scheme in order to extend payment terms and protect their own cash flow is a worrying trend that is spreading across sectors and industries.

“At a time when the economic outlook remains uncertain it is fundamentally unfair that small businesses are being used as a line of credit for larger organisations and propping up big business.

“This is yet another example of the supply chain abuse that threatens to break the backbone of the British economy – small businesses. The need for assertive action from policy makers to fix the broken big business ethics culture in the UK is self-evident.”

Heinz and AB InBev have also been criticised for changing payment periods, and in 2009 Diageo, whose brands include Baileys, Guinness and Blossom Hill, was added to the FPB’s late payment “hall of shame” after extending payment terms to 60 days.

A Diageo spokesman said: “We value our suppliers and look to have open and fair relationships. We have written to all our key manufacturing suppliers to make them aware that from 1 February 2015 we are moving to a different procurement process for future tenders.

“This will allow them to be fully aware of our procurement terms and to allow them to factor that into future tenders. We have not changed the current payment terms with these suppliers.

“We also offer a supplier financing programme which enables them to benefit from early payment, in advance of normal payment terms giving suppliers’ assistance with their cash flow requirements.”

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