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Diageo to delay payments to suppliers
Diageo has warned suppliers that it will in future take three months to pay its bills, increasing its payment contract from 60 to 90 days.
It means that newly contracted suppliers will have to wait three months to be paid, and makes Diageo the latest big name to put further pressure on its supply chain.
According to the Telegraph, the company has sent letters to its suppliers stating that from February 1 it will extend the number of days it takes to make payments from 60 days to 90 days on all new contracts and tenders. In 2009 the company doubled its payment times from 30 to 60 days.
The letter to suppliers stressed that the company needed to “improve its cash flow and drive out costs”, believing the action would support the “long term sustainability of our business and yours.”
The company, which owns Guinness and Johnnie Walker whisky, said it would offer its supply chain access to a financing programme with Santander to support businesses affected. However The Forum of Private Business (FPB) has criticised Diageo’s actions warning that it “threatens to break the backbone of the British economy – small businesses”.
Diageo confirmed to the drinks business that the majority of the suppliers affected will be in the UK, with some affected in Europe.
Speaking to The Telegraph Phil Orford, chief executive of the FPB, said his organisation was consulting with the Institute of Credit Management and Department of Business Innovation and Skills to challenge Diageo’s status as a signatory to the Prompt Payment Code.
Earlier this month AB InBev came under fire over its practices of making suppliers wait even longer for payment due to its 120 day payment contract.
UK MP and business minister Matt Hancock said making small businesses wait an unreasonable time for payment was “entirely unacceptable”, and announced plans to introduce legislation this year to name firms that demand lengthy payment terms.
Responding to concerns, Diageo said in a statement: “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 February 1, 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.”
This is not possible in France as the law, precisely written to protect smal businesses, obliges buyers to pay maximum at 60 days net or 45 end of the month.
“We value our suppliers and look to have open and fair relationships.” ???!!! It would appear, in acting in this way, that Diageo do not value their suppliers one bit, neither do they respect their suppliers’ business, nor the constraints their suppliers might face. How Diageo can view this as a “fair relationship” is beyond me. This is nothing more than a large company abusing their size and position in the market to impose unfair trading terms on their suppliers – or put it another way, holding a gun to their head. 60 days is 60 days. Call in Vince Cable.
This strategy may not come as a surprise, but it stinks nonetheless.
The arrogance with which this appears to be being presented to the suppliers, as a fait accompli, is
no surprise either, but should be challenged within the context of the Prompt Payment Code.
Will Diageo be offering similar extended credit to its customers if they choose to unilaterally vary their credit terms ?
I think not!
Disgusting behaviour from Diageo. No justification whatsoever. “improve its cash flow and drive out costs”, = improve shareholder value at the expense of everyone else. That’s the last bottle of anything they produce I’ll ever buy.
I wish I could say I was surprised at this .. but of our 2000 clients, the Diageo owned wineries are by FAR the worst to deal with in regards to payment. The clincher on this whole situation is .. that the 90 days is not from the invoice date.. but from when the invoice is approved in their system, which when you take into consideration that they issue a PO before purchase , then we as a supplier ship product , then submit the invoice , THEN the AP department has to go BACK to the person who made the purchase and have that invoice approved, adds another lets say 30 days… then sometimes they reject the invoice for something minute, and don’t even tell the vendor about it. until they ask.. this will mean a MINIMUM of 120 days as far as I am concerned, and that is only if everything goes perfectly.
Id love to go on and on.. but I need to go tell the electric company that I will only pay them 90 days after the bill is sent.. lets see how that goes.
To be fair to Diageo – though they are extending their payment terms, they have established “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.” So suppliers can get paid earlier as long as they pay Diageo for the privilege. I think that this is very magnanimous and highly ethical on their part.
How do you do a sarcastic face? :-£
I find this action extremely hypocritical, as Diageo in the USA has manipulated the State legislatures to pass laws requiring shorter payment windows for their retail clients, with ever increasing penalties upon non-compliance. Here in Kentucky, it’s down to 20 days, and if you’re late, no supplier is then allowed to ship to the account. That has removed one of the most effective tools for correction invoice errors, that of non-payment until said invoice is fixed. How can any small business (as nearly all retail alcohol stores in the USA are small independents) survive when one non-payment blocks all products from your shelves?
Diageo should be forced to stand by their 60 day terms, at least, as a sign of respect and a recognition of the economic realities governing smaller companies.
I’m with you Gordon Wright… I too will boycott this bully’s products! When are we going to stop allowing such behemoth companies to continue to grow; what happened to anti-trust rules? Companies such as this will just continue to get bolder and bolder.