The UK retailer has pledged to deliver a simpler business model for suppliers by standardising their payment terms.
Tesco will no longer use a combination of complex and varied terms and will instead introduce a new standard approach, which will offer specific concessions to help small and medium-sized businesses.
Smaller suppliers, who deliver up to £100,000 ($211,138) worth of products in a year, will be paid within 14 days. While medium-sized suppliers who deliver up to £10 million ($21.1 million) in product value per year, will have their accounts settled five days quicker than larger suppliers in their category.
Speaking at IGD’s The Big Debate 2015 conference this week, Tesco CEO Dave Lewis said introducing a new standardised policy across each category for larger suppliers, and shorter payment terms for small and medium suppliers, will help to deliver a fairer, more transparent and consistent approach across Tesco’s supply base.
“Our customers want value, great availability and new choices,” he said. “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.”
Standardisation means that in the majority of categories, Tesco will be offering shorter payment terms to its suppliers than they in turn pass onto their own suppliers. The smallest suppliers will typically be paid 34 days quicker than before. For all partners, the terms refer to the day when they will receive cash and not the day the payment is sent for processing. All changes will be in place by the end of June 2016 to enable suppliers to build plans into their annual financial planning cycle.
Tesco says it will make no financial gain from this and, in some cases, this will mean additional short-term investments to improve cashflow right across the supply chain.
The retailer is also introducing a new vendor payment scheme, which offers no financial incentive to the retailer, but provides a fair and consistent deal for all suppliers, regardless of their size.