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.”