Tesco acts to cut payment times for SMEs

Will Green is news editor of Supply Management
16 October 2015

Tesco has unveiled more favourable payment terms for its small and medium-sized suppliers.

Under the changes suppliers who provide up to £100,000 worth of products in a year will be paid within 14 days, while firms supplying goods worth up to £10 million will have their accounts settled five days quicker than larger suppliers in their category.

The supermarket said it was standardising payment practices and would “no longer use a combination of complex and varied terms”.

“Standardisation means that in the majority of categories, Tesco will be offering shorter payment terms to its suppliers that they in turn pass onto their own suppliers. The smallest suppliers will typically be paid 34 days quicker than before,” the supermarket said.

The move comes after Tesco admitted in its annual report to “probable breaches” of the groceries supply code of practice and that it had written down profits to cover the overstatement of commercial income, which includes payments from suppliers.

Speaking at an IGD conference, Tesco CEO Dave Lewis said: “One of the things that made Tesco great was the little things we did to help our customers. 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.

“Our customers want value, great availability and new choices. If we think about that from one end of the supply chain to the other we can collaborate with suppliers on ideas and grow together. That's good for customers, good for suppliers and good for Tesco.”

He added: “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.”

The company said the changes would be in place by the end of June 2016.

Tesco also said it had introduced a range of measures to improve relationships with suppliers including single product teams responsible for the entire lifecycle of a product, adopting a “transparent, long-term cost-based buying model with consistent and fair payment terms”, launching a supplier helpline and reducing the ways it receives commercial income from 24 to five.

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