Supplier groups have welcomed the announcement that Tesco is set to standardise its payment terms.
As of June 2016, the changes will result in Tesco offering six standardised and shortened payment terms, depending on the category, meaning the majority of small to medium Tesco suppliers will be offered a shorter term than they give their own suppliers.
“We are pleased to see Tesco has listened to our arguments and made improvements to its payment practices towards its smaller suppliers,” said Federation of Small Businesses national chairman John Allan.
“The new standardised and clearly defined payment terms should provide a far more reasonable payment framework for small firms. It will allow them to have more confidence when doing business, giving them the ability to plan ahead more effectively,”
Research by the Federation of Small Businesses found the late payments resulted in a third of its members paying their own suppliers late, with three in 10 saying this has affected their ability to grow.
“We hope today’s announcement will go some way to easing the pressure on the supply chain and that other big companies will make similar changes to their payment terms.”
Business-supplier collaboration platform Tradeshift also welcomed the changes.
“Finally, we’re starting to see some of the UK’s most influential organisations tackle the late payments issue,” said CEO Christian Long.
“The technology and knowhow exist for businesses and suppliers to collaborate effectively and easily negotiate mutually suitable fees and payment terms. All that’s been missing is the will.”
The 14 day terms for the smallest suppliers will be implemented by the end of the month and the largest will have until 26 June to build the plans into their annual financial cycle.
However, some feel the new terms have not been applied quickly enough and the involvement of Tesco does not necessarily guarantee others will also make changes.
Tracy Ewen, MD of IGF Invoice Finance expressed concern that some suppliers may still be subject to unsustainable payments in the months leading up to the change.
“While this is a positive step, it remains to be seen if others in the sector will follow suit. Unfair payment is a topic that continuously resurfaces and suppliers are still waiting for any substantial support from government to help tackle the issue, with the date of the Enterprise Bill coming into place still very much an uncertainty.”