Credit: John Shortland/Flickr

Diageo under fire for offering three month payment terms

The booze behemoth has been accused of 'supply chain abuse' threatening 'the backbone of the British economy.'

by Jack Torrance
Last Updated: 16 Apr 2015

Yet another corporate giant has been accused of mistreating its suppliers. Yesterday it emerged that Diageo, which makes Smirnoff, Captain Morgan and Guinness, had sent a letter to suppliers saying that from February 1st all new contracts and tenders will be offered payment terms of 90 days.

‘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,’ the spin-tastic letter said, according to the Telegraph.

The letter added that suppliers would be given access to a supply chain finance scheme from Santander. Phil Orford, chairman of the Forum of Private Businesses, said the group would call for Diageo to be removed as a signatory to the Prompt Payment Code, a voluntary set of guidelines that compels businesses to pay their suppliers on time.

To be fair to Diageo, it doesn’t stand accused of paying late – just of extending the gap between when it’s invoiced to when it pays suppliers to a quarter of a year – or 2,160 hours. That’s a long time for small companies that often struggle to keep their cash flow healthy as it is.  

‘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,’ Orford said.

‘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. This is yet another example of the supply chain abuse that threatens to break the backbone of the British economy – small businesses.’

Diageo joins the likes of Premier Foods, Mars and Halfords in being accused of treating suppliers unfairly. The EU late payment directive says that businesses should pay all of their invoices within 60 days ‘unless they expressly agree otherwise and if it is not grossly unfair to the creditor.’ The jury’s still out on what’s considered ‘grossly unfair.’

In response, Diageo said in a statement that it values ‘all our suppliers’ and looks to have ‘open and fair relationships.’ It added that its letter to suppliers '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,’ it added. ‘We also offer a supplier financing programme which enables them to benefit from early payment.’

Of course many small business bosses will be wondering why they should have to go through the hassle and cost of a supply chain finance scheme, just to be paid within a reasonable amount of time.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

The ignominious death of Gordon Gekko

Profit at all costs is a defunct philosophy, and purpose a corporate superpower, argues this...

Gender bias is kept alive by those who think it is dead

Research: Greater representation of women does not automatically lead to equal treatment.

What I learned leading a Syrian bank through a civil war

Louai Al Roumani was CFO of Syria's largest private retail bank when the conflict broke...

Martin Sorrell: “There’s something about the unfairness of it that drives me”

EXCLUSIVE: The agency juggernaut on bouncing back, what he would do with WPP and why...

The 10 values that will matter most after COVID-19

According to a survey of Management Today readers.

Why efficiency is holding you back

There is a trade-off between performance and reliability, but it doesn’t have to be zero-sum....