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Diageo exposed for extending supplier payment terms to 90 days

Published:  27 January, 2015

Diageo is the latest high profile supplier to be exposed by the national media for trying to exert what has been seen as overt pressure on its suppliers.

The Telegraph today reveals Diageo, one of the country's largest wine and spirits businesses in the UK, has written to suppliers to warn them it might take up to three months to pay their bills.

It reports that from February 1 payment terms will be extended from 60 days to 90 days "on all new contracts and tenders".

The Telegraph quotes Diageo's letter to suppliers as saying it needs to "improve our cash flow and drive out costs".

It added: "Diageo continually looks for ways to enable us to invest in the growth of our great brands. This activity supports the long term sustainability of our business and yours.

"In addition, we have significant investment projects underway across our operations in Scotland and Ireland and like any business, to support our investments we need to improve our cash flow and drive out costs."

A new "financing programme" was being set up by Santander to help suppliers work with the new terms.

The letter was leaked to the paper by The Forum of Private Business (FPB) which now plans to call on the government to take action over such changes in supplier terms. It claimed to the Telegraph that such behaviour "threatens to break the backbone of the British economy - small businesses".

Phil Orford, chief executive of the FPB, said: "We are very concerned, but sadly unsurprised, to learn that Diageo is yet again extending its payment terms, a practice that is hugely damaging for small businesses.

"We are 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 and will call for their removal.

"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.

Diageo has responded to the allegations in its own 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."