UK lobby group Forum of Private Business (FPB) is declaring the U-turn a victory, but warns the practice of ‘grossly unfair trading terms’ continues to plague small businesses.
It pledges to continue pressing businesses to ensure they support small and medium sized enterprises (SMEs) in their supply chains.
In January the FPB blew the whistle on a new procurement process from Diageo, which was supposed to come into effect on February 1. A letter to suppliers explained it would increase the time it takes to make payments, from 60 days to 90 days.
But the FPB says the practice would have been ‘hugely damaging’ for small businesses, for whom cash flow is particularly important.
Diageo on ‘the importance of SMEs to the sustainability of our business’
Diageo had been under pressure from the FPB, businesses, and politicians over the increased payment terms. It has now backed down and announced that it will commit to a maximum 60 day term for SMEs in the UK.
“Diageo values its long term and collaborative relationships with its suppliers,” Diageo said in a statement sent to BeverageDaily.com
“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.
"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.”
‘Petrified’ small businesses
The FPB had already included Diageo in its 2009 ‘Hall of Shame’ for increasing payment terms from 30 to 60 days.
It also gestured to the UK’s Prompt Payment Code – an initiative administered by the Chartered Institute of Credit Management (CICM) on behalf of the UK Department of Business, Innovation and Skills. This code, which encourages good practice, was signed by Diageo.
Phil Orford, chief executive of FPB, said smaller suppliers were often ‘petrified’ of challenging practices for fear of being delisted as a result.
"Diageo's decision to retract its letter extending payment terms from 60 to 90 days is welcome and a victory for common sense, the small business lobby and for the strength of the new prompt payment code,” he said.
“However, the practice of implementing grossly unfair trading terms is a growing trend amongst some of the UK’s most well-known companies which risks breaking the backbone of the economy – small business.
“Following our success in challenging Diageo we will be pressing other large business to follow suit in supporting rather than undermining their supply chains and in doing so, give their suppliers the cash-flow breathing space needed to help them grow."