Speaking at the Institute of Grocery Distribution ("IGD") conference, Tesco CEO Dave Lewis addressed the problem of late payments by committing his supermarket to a new standardisation policy, whereby its small suppliers will be paid in full within two weeks of making a delivery, with the policy coming into force in June 2016.
‘‘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,’’ stated Lewis.
The supermarket chief made the statement during one of the toughest periods in the company’s history. Lewis recently announced a 55 per cent loss in profits during the first half of the financial year as he looks to turn Tesco’s fortunes around.
‘‘To help with this process, we’re announcing the standardisation of our payment terms. 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,’’ said the CEO.
The change means that smaller suppliers who deliver up to £100,000 worth of products in a year will be paid by Tesco 34 days quicker than before. 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.
This will come as good news to thousands of small businesses who have been plagued by late payments.
Small businesses supplying to the main supermarket groups have historically turned to invoice finance as a means of accelerating their cashflow; however, long payment terms have meant that finance costs have had an adverse affect on supplier margins. The proposed terms to be adopted by Tesco in 2016 will go some way to ensure that smaller suppliers are able to rely on invoice factoring and invoice discounting as a means of growing their business on a sustainable basis.
With an increasing focus on lengthy payment terms, as illustrated by the appointment of the government's Small Business Commissioner, it is hoped that other large supermarket chains will follow suit.