Tesco simplifies supplier payment terms in wake of scandal

By James Davey

LONDON, Oct (HKSE: 3366-OL.HK - news) 6 (Reuters) - British supermarket chain Tesco will further simplify its relationship with suppliers by standardising payment terms, it said on Tuesday, in the wake of an accounting scandal last year.

The country's biggest retailer said it would no longer use a combination of complex and varied payment terms and will instead introduce a new standard approach for suppliers in each of its product categories, with specific concessions offered to help small and medium-sized businesses.

Former Unilever executive Dave Lewis, brought in as Tesco CEO just over a year ago to revive its fortunes after a drop in British market share, has been changing the way the firm does business with suppliers in the wake of the accounting scandal relating to the income it receives from them.

The company announced last year it had overstated profits by 263 million pounds due to booking deals with suppliers too early, prompting a criminal investigation by Britain's Serious Fraud Office.

Lewis has already moved to reduce the number of ways Tesco takes commercial income from suppliers from 24 to five.

He is now tackling its payments to suppliers. The standard number of days until payment will now be 28 days for suppliers of fruit, vegetables, meat, fish and poultry, 40 days for dairy products, 45 days for bakery, 60 days for wine, beer and spirits and 60 days for clothing and general merchandise sourced in the UK.

Smaller suppliers - who deliver up to 100,000 pounds worth of products in a year - will be paid within 14 days, across all the categories, with the smallest suppliers typically paid 34 days quicker than before.

Medium-sized suppliers who deliver up to 10 million pounds in product value per year, will have their accounts settled five days quicker than larger suppliers in their category.

"By introducing a new standardised policy across each category for our larger suppliers, and shorter payment terms for our small and medium suppliers, it will help us to deliver a fairer, more transparent and consistent approach across our supply base," Lewis told the IGD conference in central London.

"We want to work with our suppliers to get back to innovating on behalf of our customers and these changes will make it easier for us to do that."

All the changes will be in place by the end of June 2016.

Tesco (Xetra: 852647 - news) said it will make no financial gain from the move and in some cases this will mean additional short term investments to improve cash flow across the supply chain.

The retailer is expected to report on Wednesday that operating profit more than halved in the first half of its 2015-16 financial year. (Reporting by James Davey; Editing by Pravin Char)