Diageo U-turn on controversial supplier payments

Diageo has backtracked on plans to extend the amount of time it takes to pay new suppliers from 60 to 90 days, following claims the group risked “breaking the backbone of the British economy”.

Diageo has made a U-turn on controversial plans to introduce a 90-day payment plan for new supply contracts

In January this year, the Forum for Private Business (FPB) criticised the UK drinks group’s plans to introduce new payment terms for its new suppliers, claiming this could hit small businesses.

Diageo, which defended the move as something that supports the long-term sustainability of its business, as well as that of its suppliers, signed up to the UK government’s Supply Chain Financing programme which aims to help small to medium-sized businesses.

However, FPB argued this scheme was used as a cover to extend payment times – something it described as a “worrying trend”.

According to the Telegraph, Diageo has now made a U-turn on the plan, claiming no small or medium-sized businesses would be subject to a 90-day payment scheme, and would instead be paid within 60 days.

Diageo made the announcement after the Chartered Institute of Credit Management (CICM) said it had considered removing the company as a signatory of the Prompt Payment Code – which it manages on behalf of the government.

David Cutter, president of supply and procurement for Diageo, reinforced the group’s claim that it “values long term and collaborative relationships with its suppliers”, adding that its initial announcement of the new payment scheme had caused “confusion”.

“We want to clarify that our standard supplier payment terms have not changed and no supplier would be required to move to longer payment terms in order to secure future business,” he said.

“We continue to take an open and flexible approach when reaching agreements with suppliers and tenders based on existing terms will continue to be accepted.

“We fully recognise the importance of SMEs to the UK economy and to the sustainability of our own business and therefore we will commit to a maximum 60-day term for SMEs in the UK.”

Matthew Hancock, UK business minister, welcomed the announcement, claiming that it is “hugely important that large firms pay their small suppliers promptly”.