Diageo fires back at supplier payment criticism

Diageo has hit out at claims it is squeezing small suppliers under a new payment plan, arguing that it “values fair relationships”.

Diageo has come under fire for extending its payment to suppliers from 60 to 90 days

The Telegraph recently reported the Forum for Private Business (FPB) has criticised UK group’s plan to extend how long it takes to pay new suppliers from 60 to 90 days.

FPB claimed the change “threatens to break the backbone of the British economy – small businesses”, adding that it is pursuing a complaint with the government.

Diageo said the new payment terms will only apply to future contracts, rather than exiting suppliers. In a letter to suppliers, the group said the change “supports the long-term sustainability of our business and yours”, adding that “to support our investments we need to improve our cash flow and drive out costs”.

The group signed the government’s Supply Chain Financing programme which aims to help small to medium-sized businesses. As such Diageo said it supports such suppliers through its Diageo/Santander Supplier Financing Programme, which can offer early payment to aid cash flow.

However, FPB told The Telegraph this scheme was used as a cover to extend payment times.

Phil Orford, chief executive of the FPB, said the group was “concerned” and “sadly surprised” by the new payment scheme.

“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,” he said.

A spokesperson for Diageo said: “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 1 February 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.”

Earlier this month, a global supply chain consultancy company urged drinks firms to evolve and improve their supply chains to meet consumer demand for greater variety.