Sainsbury has provoked a storm of controversy over its dealings with suppliers by trying to force them to wait longer to be paid.
The move comes just weeks after the supermarket chain made non-negotiable demands for lower invoice prices.
A letter has now been sent out to 2,000 suppliers informing them that Sainsbury will, in future, pay its bills up to four weeks later than usual.
This represented a “clear abuse of power,” said one supplier. He added: “It’s not a question of whether Sainsbury has given us reasonable notice of the change, or whether payment terms of 40-60 days are standard for the industry - which they are not. It’s the fact that the cost price originally set was agreed on the basis of the previous payment terms.
“If you had been working on 21 days and suddenly switch to 50 days, that is going to have a big financial impact.”
Sainsbury, which became the subject of further takeover speculation when its shares rocketed to a five-month high on Wednesday, claimed the move would bring all of its suppliers into line both with each other and with industry standards.
A spokeswoman said: “If you issue an invoice on March 1, you’ll get paid at the end of April. More than 6,000 of our suppliers already operate on these terms.”
Coming hot on the heels of recent demands for a 1% reduction in net invoice prices, however, the timing was not great from a PR point of view, said City analysts.
“On one level - you can’t blame them,” said one. “JS is not the first company to try to improve its management of working capital and boost its balance sheet.
“But in the current climate, with the OFT expected to report on the Code of Practice and the power of the supermarkets now a highly newsworthy topic, it smacks of desperation.”
Another added: “Starting to play hardball with your supply base to improve your cashflow when you are running on a high cost base is a short-term game. While you could argue it’s good financial practice, it doesn’t do much for trading relationships.”
One supplier said: “This could be a device for trying to leverage discounts from larger suppliers in return for maintaining prompt payment agreements that they already have in place. Smaller suppliers might have to bite the bullet, and this would severely impact their cash flows and dealings with their own suppliers. It’s like Safeway all over again.”
Elaine Watson & Richard Clarke
The move comes just weeks after the supermarket chain made non-negotiable demands for lower invoice prices.
A letter has now been sent out to 2,000 suppliers informing them that Sainsbury will, in future, pay its bills up to four weeks later than usual.
This represented a “clear abuse of power,” said one supplier. He added: “It’s not a question of whether Sainsbury has given us reasonable notice of the change, or whether payment terms of 40-60 days are standard for the industry - which they are not. It’s the fact that the cost price originally set was agreed on the basis of the previous payment terms.
“If you had been working on 21 days and suddenly switch to 50 days, that is going to have a big financial impact.”
Sainsbury, which became the subject of further takeover speculation when its shares rocketed to a five-month high on Wednesday, claimed the move would bring all of its suppliers into line both with each other and with industry standards.
A spokeswoman said: “If you issue an invoice on March 1, you’ll get paid at the end of April. More than 6,000 of our suppliers already operate on these terms.”
Coming hot on the heels of recent demands for a 1% reduction in net invoice prices, however, the timing was not great from a PR point of view, said City analysts.
“On one level - you can’t blame them,” said one. “JS is not the first company to try to improve its management of working capital and boost its balance sheet.
“But in the current climate, with the OFT expected to report on the Code of Practice and the power of the supermarkets now a highly newsworthy topic, it smacks of desperation.”
Another added: “Starting to play hardball with your supply base to improve your cashflow when you are running on a high cost base is a short-term game. While you could argue it’s good financial practice, it doesn’t do much for trading relationships.”
One supplier said: “This could be a device for trying to leverage discounts from larger suppliers in return for maintaining prompt payment agreements that they already have in place. Smaller suppliers might have to bite the bullet, and this would severely impact their cash flows and dealings with their own suppliers. It’s like Safeway all over again.”
Elaine Watson & Richard Clarke
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