Supermarkets will resist crack down on payment terms

The UK’s supermarkets will not respond to business secretary Lord Mandelson’s call for a 10-day payment target to suppliers, a leading financial adviser has claimed.

The move would require a one-off cash transfer of £5.5bn from the top four supermarkets - Tesco, Asda, Sainsbury and Morrisons - head of food and agribusiness at Grant Thornton Duncan Swift warned.Restricting payment terms to within 30 days would be more realistic and achievable, he argued. But a total lack of movement on payment terms would see a rise in the number of suppliers becoming insolvent in the coming months.

The top four supermarkets’ average time to pay their suppliers has steadily crept up over the last 10 years to 35 days, according to Grant Thornton. And Asda has introduced a ‘pay-me-early’ scheme, for which suppliers have to pay finance charges if they want to receive earlier payment for what is owed to them, he noted.

Swift said: “When you shop at a supermarket you are effectively paying cash for your basket of goods at the till. The supermarkets have no one owing them money and they are enjoying the advantage of this by stretching out the time before they pay the suppliers of those goods in your basket.

“The top four supermarkets owe their suppliers nearly £8bn at any point in time and to achieve a 10-day payment target would effectively require a one-off cash transfer of £5.5billion to redress the balance. That simply isn’t going to happen.

“But this is big business taking advantage - arguably unfairly - of their dominance over smaller suppliers creating a vicious ‘credit crunch within a credit crunch’ as banks have generally reduced overall loan and overdraft funding.”