Supply chain · 6 October 2015

Tesco cuts payment terms to 14 days for small businesses

Tesco CEO, Dave Lewis, said standardising payment terms would enable the company to deliver a "fairer, more transparent and consistent approach across our supply-base”.
Tesco CEO, Dave Lewis, said standardising payment terms would enable the company to deliver a “fairer, more transparent and consistent approach across our supply-base”.

Tesco has announced it is delivering a simpler business model for suppliers, by standardising their payment terms, with smaller suppliers set to be paid within 14 days.

It is introducing a new standard approach offering specific concessions in an effort to help small and medium-sized businesses. Smaller suppliers – which deliver up to £100,000 worth of products in a year – will be paid within 14 days, around 34 days quicker than before. The medium-sized suppliers which deliver up to £10m in product value per year will have their accounts settled five days quicker than larger suppliers in their category.

Tesco CEO, Dave Lewis, speaking at the IGD conference, announced this change as part of an effort to change the company’s behaviour, following its accounting scandal last year.

He said: “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.”

Lewis added that Tesco customers wanted “great 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.” He said the change would be good news for customers and suppliers, as well as Tesco.

Standardising the payment terms, should, Lewis said, held Tesco to deliver a”fairer, more transparent and consistent approach across our supply-base”.

This summer, the Conservatives confirmed the introduction of a new small business commissioner to help prompt a culture change around small business disputes with larger companies over late payment.

Research from Sage found that over two thirds of firms (68 per cent) were waiting 60 days for payment, while over half were waiting longer than 90 days. Some 70 per cent said they thought making bigger companies commit to 30 day payments would have a positive impact on their business success.

Tesco’s accounting scandal arose over how it booked commercial income from suppliers, as it had been paying them later, while taking money earlier – leading the retailer to overstate profits in the first half of last year by £326m.

It led to Christine Tacon, the Groceries Code Adjudicator, launching an investigation into Tesco’s treatment of suppliers, and in June 2015, Tesco was rated as the worst of the major supermarkets at complying with the government-backed industry code. Tacon though, said Tesco had made a “big improvement” under Lewis, with supplier complaints down on the year before.

Elsewhere, the supermarket is looking make further improvements with the introduction of a Vendor Payment Scheme – which offers no financial incentive to the retailer, but provides a “fair and consistent deal for all suppliers, regardless of size”.

Other measures Tesco has brought in to improve engagement include moving to reduce the number of ways it takes commercial income from 24 to five and launching a supplier helpline, aiming to resolve any issues raised by suppliers within 48 hours.

Image: Shutterstock

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Rebecca is a reporter for Business Advice. Prior to this, she worked with a range of tech, advertising, media and digital clients at Propeller PR and did freelance work for The Telegraph.