26 Jan 2016 Tesco apologises for delayed payment to suppliers
To most readers, it is no surprise. Tesco, one of the UK’s largest grocery retailers deliberately delayed paying suppliers in order to improve their own financial position. We are not surprised because it is commonplace for large businesses to use their supply chain like a bank. It is commonplace for large businesses to have no regard for the impact on their suppliers of late payment. What is not commonplace is to see a large business like Tesco have to air its dirty laundry in public.
Tesco, still under investigation by the UK’s Serious Fraud Office about accounting irregularities that saw a £326m black hole appeared in its accounts, apologized for late payment practices that they said were harmful to suppliers.
According to the report published today by Christine Tacon the Grocery Code Adjudicator and reported here by the BBC, these practices included encouraging Tesco staff to seek agreement from suppliers to the deferral of payments due to them in order to temporarily help Tesco margins.
“I found that delay in payments was a widespread issue that affected a broad range of Tesco suppliers on a significant scale,” Ms Tacon said.
“The delay in payments had a financial impact on suppliers, was an administrative burden to resolve, detracted from the time available to develop customer focused business and had a detrimental impact on some suppliers’ relationships with Tesco.”
To their credit, Tesco are doing something about it – they have to – they got caught. But there are some encouraging words that brighten what is otherwise a murky and shameful story from Tesco’s Chief Executive Dave Lewis who says: “The absolute focus on operating margin had damaging consequences for the business and our relationship with suppliers. This has now been fundamentally changed.”
This is what I and many others have been saying for years. Tunnel vision thinking that elevates financial performance above all else is absurd. The financial benefit of delayed payment is entirely offset if suppliers react by raising their prices. Beating suppliers up on price only works for so long – there is only so much you can squeeze out of one lemon and when you’ve knocked down the price as far as you can, you look to other means to show continued year on year operating performance like delaying payments. And when you’ve extended payment as far as you dare, where else can you go?
Tesco was one of the bad guys, but they are so not alone. The construction industry is rife with the sorts of malpractice that Tesco was up to as are many many other large businesses. Tesco was named and shamed but I hope the other culprits aren’t going to wait till they get caught to start to right their blinkered thinking and start treating their suppliers with the respect they deserve.
Pete Loughlin can be found on twitter @peteloughlin