Tesco will cut the time it takes to pay its clothing suppliers from June 2016 in order to “encourage collaboration” with its supply base and help smaller businesses.
The supermarket chain will introduce a standardised approach with “specific concessions” for small and medium-sized businesses. Smaller UK-based suppliers that deliver up to £100,000 worth of products in a year will be paid within 14 days.
Medium-sized UK-based suppliers that deliver up to £10m in product value per year will have their accounts settled in 55 days, five days quicker than most of its competitors of a similar size and 35 days faster than its current 90 day terms.
Tesco’s overseas clothing suppliers – most of whom are in Asia – will continue on 90-day payment terms, which Tesco said was the “industry norm”.
One supplier Drapers spoke to welcomed the move. “They needed to do something to sort out their supplier relationships as no one wants to work with them. Suppliers can’t fund their businesses for three months waiting to be paid. The new terms are great. Next is 30 days and they are the best in the business so a two week turnaround will entice more people to work with them.”
Tesco is also introducing a new Vendor Payment scheme, which the retailer said offers it “no financial incentive”, but provides a “fair and consistent deal for all suppliers, regardless of their size”. No further details of the scheme were given at this time.
Tesco’s chief executive Dave Lewis said the new policy would deliver “a fairer, more transparent and consistent approach across our supply base”.
He added: “We want to work with our suppliers to get back to innovating on behalf of our customers and these changes will make it easier for us to do that. If we think about that from one end of the supply chain to the other we can collaborate with suppliers on ideas and grow together. That’s good for customers, good for suppliers and good for Tesco.”
Tesco said it has simplified its relationships with suppliers over the past year by creating a single product team responsible for the entire lifecycle of a product and launching a supplier helpline.
Tesco will publish its interim results tomorrow (October 7).