This move from the leading UK drinks manufacturer has been openly presented to suppliers as a new scheme to “improve the company’s own cash flow and drive down its costs”.
In a letter to suppliers, it said: “Diageo continually looks for ways to enable us to invest in the growth of our great brands. This activity supports the long term sustainability of our business and yours.
“In addition, we have significant investment projects underway across our operations in Scotland and Ireland and like any business, to support our investments we need to improve our cash flow and drive out costs.”
But Diageo’s decision to extend their payment terms is not without precedent. In 2009 the company doubled its terms to 60 days, resulting in their inclusion in the Forum’s ‘Hall of Shame’.
But Diageo isn’t the only one. The lobby group for small business says Mars, Debenhams and Monsoon have carried similar, “cynical exercises” in the past 12 months.
The FPB warned that such behaviour “threatens to break the backbone of the British economy – small businesses”.
Phil Orford, chief executive of the FPB, said: “We are very concerned, but sadly unsurprised, to learn that Diageo is yet again extending its payment terms, a practice that is hugely damaging for small businesses.
“We are consulting with the Institute of Credit Management and Department of Business Innovation and Skills to challenge Diageo’s status as a signatory to the Prompt Payment Code and will call for their removal.
“The practice of big businesses using a supply chain finance scheme in order to extend payment terms and protect their own cash flow is a worrying trend that is spreading across sectors and industries. At a time when the economic outlook remains uncertain it is fundamentally unfair that small businesses are being used as a line of credit for larger organisations and propping up big business.
“This is yet another example of the supply chain abuse that threatens to break the backbone of the British economy – small businesses. The need for assertive action from policy makers to fix the broken big business ethics culture in the UK is self-evident.”
In a statement, Diageo said: “We value our suppliers and look to have open and fair relationships.
“We have written to all our key manufacturing suppliers to make them aware that from February 1, 2015, we are moving to a different procurement process for future tenders. This will allow them to be fully aware of our procurement terms and to allow them to factor that into future tenders.
“We have not changed the current payment terms with these suppliers. We also offer a supplier financing programme which enables them to benefit from early payment, in advance of normal payment terms giving suppliers’ assistance with their cash flow requirements.”
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