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Tesco to pay SME suppliers faster than larger firms

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Tesco CEO Dave Lewis continues his mission to repair the supermarket’s reputation following a £6.4bn loss back in April.

In September, Lewis oversaw the sale of Tesco’s Homeplus division in Korea for £4.2bn. He said the deal “realises material value for shareholders and allows us to make significant progress on our strategic priority of protecting and strengthening our balance sheet”.

Following that, the latest move has seen Tesco simplify its trading terms with suppliers – an attempt to “increase transparency” across all operations. And with better relations with clients, Tesco hopes to “improve innovation for shoppers”.

The “simpler business model” will result in medium-sized suppliers that deliver up to £10m in product value annually have accounts settled five days faster than those of larger suppliers. Additionally, small suppliers with up to £100,000 of products a year will be paid within 14 days.

In turn, the idea is that the SME suppliers will be able to concentrate on the things that matter for customers, which is presumably the product – not chasing up outstanding payments.

On the whole, it’s thought that the new standardisation will result in smallest suppliers being paid around 34 days quicker than before, and the changes are set to be in place by the end of June 2016.

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Interestingly this revamp to procedurs comes after a report in June found that Tesco topped a list of supplier complaints – followed by Iceland and Morrisons. The report found that the troubled supermarket rarely complied with the government’s industry code to protect manufacturers.

“One of the things that made Tesco great was the little things we did to help our customers. 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,” said Lewis, who made the revelation at the IGD Conference.

He continued: “Our customers want value, great availability and new choices. If we think about that from one end of the supply chain to the other we can collaborate with suppliers on ideas and grow together. That’s good for customers. Good for suppliers. And good for Tesco.

“To help with this process, we’re announcing the standardisation of our payment terms.
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.”

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