The Chartered Institute of Credit Management (CICM) has welcomed the decision by Diageo, the global drinks company, to clarify its payment terms to suppliers and commit to a maximum 60-day payment terms for all SMEs in the UK.
The decision follows a series of meetings and discussions between Diageo and the CICM which administers the Prompt Payment Code (PPC) on behalf of the Department for Business, Innovation and Skills (BIS) and whose chief executive, Philip King, is the co-Chair of the newly formed PPC Advisory Board.
Diageo is one of more than 1,800 signatories to the Code, but was criticised for appearing to change payment terms to suppliers without consultation, and therefore not acting in the spirit of the code and at risk of breaking it. The CICM intervened to seek clarification after concerns were raised and Diageo’s status as a signatory was challenged.
Diageo has acknowledged that an original letter sent to suppliers caused confusion and has reaffirmed its commitment to its suppliers and its desire in particular to support SMEs.
David Cutter, President, Supply and Procurement for Diageo said:
“Diageo values its long term and collaborative relationships with its suppliers. 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 all SMEs in the UK.”
In response to questions about Diageo’s supplier financing offering, Mr Cutter clarified:
“Our offer of supplier financing is not connected in any way to payment terms. Since launching the scheme in November 2012 it has been, and it will continue to be, available to suppliers on 60 day, or indeed fewer days. It has always been Diageo policy that suppliers can access supplier financing without moving to extended terms and that remains unchanged today.”
Mr King says that the drinks firm risked becoming the first major business to be de-listed from the Code: “The Prompt Payment Code has been strengthened recently to give it greater enforcement ‘teeth’ and this was its first major challenge,” he said.
“I am pleased that Diageo has sought to clarify its position and confirm its commitment to treating the supply chain fairly. It is a victory for Diageo, its suppliers, and all those including the CICM and BIS that seek to create better behaviour, culture and understanding of payment issues.”