Iceland's decision to extend its payment terms to 90 days and introduce a settlement discount of 2.75% has sparked a revolt among outraged suppliers.

The suppliers who spoke to The Grocer have vowed to fight the changes and say suppliers they have talked to have promised to do the same. For many it will mean they have to wait double the time for Iceland to pay invoices, causing potential cashflow problems.

A near-3% discount on their prices, meanwhile, threatens to put huge pressure on suppliers' margins at a time when raw material costs are soaring. Some have written to Iceland insisting they will not accept the terms. Its response: the matter is non-negotiable. But it has agreed to meet some suppliers to offer 'clarification'.

Such tough action by a retailer is nothing new. In January 2005 it emerged that a then-struggling Sainsbury's had written to 2,000 suppliers informing them it would be paying bills up to four weeks later than usual. This came hot on the heels of a demand for a 1% reduction in net invoice prices.

Also that year, M&S hit the headlines after renegotiating payments with suppliers, demanding a rebate to help fund marketing plans as part of its recovery bid.

And in April 2006, Asda was at the centre of a furore involving retrospective payments. At the time, one supplier told us of a meeting with Asda's buyers. "Asda told us we owed £Xm for the past three years and £Ym for 2006," he said. "This was presented in the most hostile and intimidating way."

While stories of strong-arm tactics from the larger retailers are nothing new, they come as something of a surprise from smaller chains such as Iceland, which has just 1.7% of the market [TNS Worldpanel].

With the terms set to come into force on 1 January, suppliers have leapt into action in an attempt to stop the changes. One major supplier has already consulted lawyers to establish its legal rights. It has been told to write to Iceland stating its own payment terms. If Iceland refuses to abide by these, the supplier could then take action to force Iceland to do so, stop supplying the retailer or put prices up.

Another supplier has decided on a 'non-poke in the eye' approach. It hopes to talk Iceland around, even though Iceland is insisting the decision to impose the terms has come from Icebox Holdings, its holding company, and has nothing to do with the buying team.

So will Iceland's relatively small market share make it easier for suppliers to fight its demands? Not necessarily, says a source at one supplier.

Although Iceland is comparatively small, its position as a frozen food retailer means it has magnified significance for any producer operating in that sector.

Iceland was unavailable for comment , though last week marketing director Nick Canning said the 90-day extension would simply bring it into line with its peer group. Suppliers had done well out of Iceland, he added, implying that they should take the new terms on the chin.

Suppliers, however, argue the current 45-day period is more usual. Some are questioning whether all is well at Iceland.

There is no evidence that it's in trouble, however. In the 12 weeks to 3 December, sales rose 8.2%, according to TNS Worldpanel. Icebox Holdings' accounts for the year to 30 March 2007 state that total sales rose 5.7% to £1.57bn, with underlying like-for-like sales growth of 14.5%.

And in October, chief executive Malcolm Walker said Iceland was continuing to grow, with like-for-likes up 10% and strong profits expected in the year to March 2008.

If nothing else, the incident shows that calls for the Supermarkets Code of Practice to be extended to smaller retailers could be justified.

However, unless the code itself is toughened up, a question mark remains over whether extending it to cover others would make a lot of difference. As we reveal on page 5, Iceland has told the Competition Commission's groceries inquiry that the code should be left unchanged.

Retailers currently covered are obliged to give 'reasonable notice' of a variation in terms of business to suppliers. However, the length of time that constitutes reasonable notice is not specified.

Some think that if covered by the code, Iceland would fall foul of it in this instance. Iceland sent out the initial letters to suppliers on 29 November, which means it has given a month's notice of the changes.

"Four weeks is hardly reasonable," says one supplier. "I think it's bloody cheeky."n

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