The supermarket giant Morrisons has asked at least 180 of its food suppliers to extend its payment terms to 60 or even 90 days – in many cases more than doubling their current wait.
Suppliers say they have been called to its headquarters in Bradford to discuss the changes. One, who has been asked to go from his current 30- day term to 60, said: “They dressed it up like it’s all good news for us, but it just means them holding on to our money for twice as long.
“I don’t see why we suppliers should have to shore up Morrisons’ balance sheet.”
In return for accepting the new terms, Morrisons is offering suppliers access to an invoice discounting scheme that it has agreed with Lloyds. Under this arrangement, the bank will lend suppliers what the supermarket owes them upfront, at an interest rate of Libor plus 0.75 per cent.
One supplier currently in negotiations with Morrisons said: “It’s a very competitive rate, but none of us can control Libor, and we all know interest rates are only going to go up from here. Meanwhile, what happens if Morrisons gets a credit-rating downgrade and the bank whacks up the rate?”
He said he had refused the offer but received a “forceful” email with a request to attend a meeting.
Under industry rules known as the Groceries Supply Code of Practice, created to stop the powerful supermarkets behaving unfairly towards suppliers, they are not allowed to demand longer payment terms.
“They were very careful in their language to make it clear that this was an offer, not an order,” said one supplier.
Morrisons said it was trying to unify the diverse payment terms it has across its large supplier base, while assisting suppliers in getting a better rate for their invoice financing, helping their cashflow.
“This optional scheme offers something for both sides because it allows suppliers to borrow at a better rate whilst Morrisons extends payment terms which will improve our working capital position,” the company said in a statement.
It said the low rate of interest was a reflection of the company’s strong balance sheet, which it was in effect sharing with its suppliers.
In 2012, Sainsbury’s was criticised for increasing payment terms for its non-food suppliers from 30 to 75 days. Like Morrisons, it justified the move by saying it was merely trying to unify its terms.
Morrisons’ chief executive Dalton Philips is under pressure to improve the supermarket’s performance. Andrew Higginson, who starts as chairman in the new year, will be keen to stamp his authority on the company. Analysts say a question mark remains over whether that will be with or without Mr Philips.Reuse content