October 26, 2012
Sainsbury’s Tells Suppliers They Can Wait to Be Paid
Sainsbury’s has entered the Forum of Private Business (FPB) "hall of shame" for slow payers. Extending payment times from 30 to 75 days for non-food suppliers has more than doubled the wait for some. Effective Dec. 6, the new policy has allegedly left some small businesses worried about cash flow and even survival as well as feeling pressured to accept changes to previously agreed terms.
Other occupants of the Hall include Dell, Argos and Carlsberg, who have apparently also increased supplier payment times retrospectively.
The FPB, a lobbyist for small business, was particularly loud in its criticism, stressing that Sainsbury’s has loudly proclaimed its ethical principles. Changing payment terms midway through some suppliers’ contracts was seen as particularly cynical.
For its part, the supermarket chain claims to be simply bringing its terms in line with "industry standards," according to a letter to suppliers which The Daily Telegraph reported seeing. The Daily Mail adds that spokesperson Alex Cole cited Tesco’s 90-day policy.
FPB spokesman Phil McCabe is quoted in the Telegraph saying, "In moving from 30 to 75 days, Sainsbury’s is imposing a massive 150 percent increase in the time it takes to pay. … There has been no real consultation — a letter to suppliers telling them it is happening does not count, and the excuse that this is in line with ‘industry standards’ is just laughable. That is why we are naming and shaming Sainsbury’s in our late payment hall of shame."
The Telegraph added the FPB’s claim that Sainsbury’s was one of just four FTSE 100 companies that recently refused to sign a government recommended voluntary agreement to promote good payment practices, the Prompt Payment Code (PPC). The FPB has now written requesting that Sainsbury’s reconsider.
- Sainsbury’s enters the Forum’s Hall of Shame after extending payment times by 150% – Forum of Private Business
- Supermarket giant Sainsbury’s makes suppliers wait for crucial payments – Daily Mail
- Sainsbury’s in hall of shame over supplier payments – Daily Telegraph
- Sainsbury’s criticised over increased payment times for suppliers – The Retail Bulletin
- Sainsbury’s reassures packaging suppliers over payment times extension – Packaging News
- FPB blasts "arrogant" Sainsbury’s over increased payment times – The Grocer
BrainTrust
Recent Discussions
Discussion Questions
Do you have an issue with Sainsbury’s decision to change payment terms to suppliers? What do you think the decision mean for Sainsbury’s and its suppliers?
Poll
We should all remember this the next time Sainsbury (or Tesco or other retailers) stand up and tell us how much they value their vendors, that they are more than vendors, they are business partners. I’d love to see some large vendors say “no,” like P&G did with stores in Denver years ago who were gang-cutting coupons, and pull all their products until the policy is changed.
Sainsbury’s decision will help their bottom line, but hurt its suppliers. Sainsbury gains the interest from withholding the funds, in essence having its suppliers pay more to do business with the grocer. Suppliers will have little choice but to adjust. It’s not right.
Every company wants to succeed on a fair and balanced playing field. Suppliers as well as Sainsbury have bills to pay and they should do in a timely manner.
Sainsbury’s decision to “Sains-bury” its suppliers by using suppliers’ cash for another 45 days is a rogue power play. The application of such power, like a desolating pestilence, pollutes whatever it touches.
It is very unfortunate that Sainsbury is profiting by leaning on its suppliers, which is having an adverse affect on the “little guys.” All suppliers need to stand up to this imposition of terms that are 2.5 less favorable to them.
In addition, action by customers, namely shoppers, demanding the same extended terms might bring the issue into clearer focus.
Every company should have the right to set its own payment terms. Suppliers then can elect to agree to those terms and do business with the company or not.
Companies should also have the right to periodically change those terms, but should not be able to do so during an existing agreement term. What Sainsbury is doing is basically bullying its suppliers by using its large purchasing power to say “I can do what I want and you have to accept it.”
As a small business owner myself, I know the pain that slow pay can bring. Most small businesses are trying to compete on price with larger companies, have expenses that are paid long before the service or product is shipped to a retailer and don’t have the credit that large publicly owned companies have. “Industry standards,” particularly in the grocery business, are still skewed in the retailers’ favor. Most retailers in grocery are turning their inventory every 14 days, which still allows for 2 weeks of “float.”
Sainsbury is way out of line! This decision will probably impact Sainsbury favorably and force suppliers to scramble to recoup costs. Not good for suppliers.
This is another way of intimidating suppliers who want to do business with them. It is a shame that these big companies pull this outrageous stuff without proper notice, thinking they can do whatever they want, and get away with it. There will be some small vendors walking away from this situation, as the cash crunch doesn’t make it worth their while to keep doing business with Sainsbury.
What a great partner they must be … NOT! Building your business on the backs of staff or vendors is unethical and short sighted.
I’m just a small business operator, so I tell all my clients right up front I’m not in the financing business so when my invoice says “due upon receipt” they get it. 24 years in business and only 2 or 3 clients haven’t understood that point of view.
Here’s what I know: treat your staff and vendors like partners, and they’ll give you so much more back than you’ve ever asked for.
This decision will have an effect for suppliers who have to manage their cash flow in order to remain viable. Likely many of these suppliers will in turn delay payments to their suppliers, who will in turn begin to face cash flow issues.
Terms such as Sainsbury’s imposes are manageable if communicated up front allowing the suppliers to add the carrying cost into the product cost and provide them time to better plan/manage their own cash flow needs.
Sainsbury’s seems to be performing as well or better than many retailers in the UK. It is a bit of a mystery to me why they would impose this in such a seemingly unfair manner.
Cash flow is imperative for small business owners. Sainsbury should be ashamed of their arrogant behavior and their claim that this aligns with “industry standards.” This is just another way to make their financials better at the cost of their vendors. The immediacy of these extensions could certainly suggest far less stability that Sainsbury’s reassurances suggest. There is simply no excuse for Sainsbury’s appalling behavior.
I truly wish the best for their vendors and hope economic conditions improve so they can find better business partners. It will be interesting to watch how the transparency and community of the digitally connected consumers will affect Sainsbury’s decision in the days and weeks to come.
Are they partners or suppliers? That’s the question. If they are suppliers terms go to the buyers. Partners, on the other hand, may have a say in payment terms and overall terms of business.
If I were a supplier to Sainsbury’s, I would be concerned about my future. Particularly in a challenging economy, it is disgraceful that a large company would penalize smaller businesses with such a significant payment shift.
If the industry standard is longer than Sainsbury’s traditional payment schedule, the company should have first done a better job of educating its suppliers about the potential of a future change, gained input and feedback, then possibly implemented some changes in more considered smaller increments.
You should never underestimate the value of a positive, give-and-take relationship and its effect on future success.
I am not sure how this will help the bottom line. But for sure will help cash flow. From a small business perspective, which I am, this can be devistating and possibly door closing if Sainsbury is their major customer. Again, from my perspective, if Sansbury is a major client, I have to look to other ways to survive the 45 day gap.
Then you have to hope (pray from a small business perspective) they honor the commitment and not just the old “check is in the mail response. More often than not in these situations they will wait until the 75 days to start questioning invoices further delaying the payments.
Now catch this delaying tactic: there are companies who will say the “75” days do not start until the invoice is approved. Imagine them saying there is a problem with an invoice on the 75th day, it is approved on the 80th day and now due to be paid on the 155th day. Good luck!
Those with clout will usually put the squeeze on them that don’t.
Speaking as a small supplier to some much larger businesses I’d like to voice my support and appreciation for companies that adhere faithfully and ethically to a 30-day policy. Cash flow is in many ways more important than absolute revenue. I always discuss payment terms when negotiating a project fee and write them into statements of work.
Sainsbury will certainly gain a short-term cash-flow bump with this maneuver. Once that benefit is absorbed, all it will have left is a pack of less-trusting suppliers who calculate the additional cost of capital into their net pricing.
Yes and no. As CEO of Sainsbury, why not? It’s my job. It is my commitment to the shareholders. As a supplier, changing terms without choice is crippling.
From my own personal experience, my start-up company’s first order from one of the big 3 drug chains back in 2005 was over $2,000,000. That would have made the company. The terms of the sale were net 30 days. Yes, that is what the PO said. In the first 30 days, we were paid just over $200,000 and told they would pay us the rest when the inventory was sold.
Would they do this to P&G or Colgate? Of course not. But in talking to other small suppliers, I found too late, that they did it all the time and in fact put several out of business.
Small companies have little cash and little resources. The legal system is tipped heavily to large firms with significant resources.
Did this drug chain do the right thing for their company, yes. Did they do the right thing for mine, no.
Unfortunately this is a strong-arm move that may work very negatively on Sainsbury and its “partnership” with its suppliers. Too often I have seen arrogance such as this bite at the backside of the perpetrator.
To build on what Steve said – and in response to Gene’s “why not?” – a unilateral, mid-course change in payment sounds like worse than “not right”, it sounds like breach of contract; of course I don’t know what their contracts actually say, and they may have a “when we bloody well feel like it” clause in them. But in general, borderline ethical moves like this ultimately invite government intervention: we don’t treat shoplifting as a civil matter with the excuse that a store did business voluntarily with someone (or tried to), why, ultimately, should we not also treat this as theft ??
Seems simple to me. Just required prepayment up front or at least a substantial down payment. I have no problem getting customers to prepay. For new customers, I often charge 105% upfront. If a company is taking too long to pay they are obviously having financial troubles, so it’s best to put them on C.O.D.
I am not a fan. This is the opposite of leadership. I believe in the theory that like attracts like. The best talent and companies will stay away from them for decisions like this.
This is not only unethical, but changing the terms of a contract, mid-way through the contract is illegal. Sainsbury’s needs to be shown the judicial strength of a lawsuit to truly understand that contractual payments to its supplier partners must be upheld or they will suffer the consequences just like any other business.
More Discussions
How Timely Is the Planned Lowe’s Website Renovation Focusing on Personalization?
Is Lowe’s being timely with its website reno, and is it right to be placed as…Should Costco Be Opening Members-Only Gas Stations?
Is this the right move for the warehouse club?As Boomers ‘Age Out of Peak Purchasing,’ How Can National Brands Retain Interest With Gen Z?
According to a recent First Insight study titled “Is Gen Z Still Choosing Your Brand,” while…
We should all remember this the next time Sainsbury (or Tesco or other retailers) stand up and tell us how much they value their vendors, that they are more than vendors, they are business partners. I’d love to see some large vendors say “no,” like P&G did with stores in Denver years ago who were gang-cutting coupons, and pull all their products until the policy is changed.
Sainsbury’s decision will help their bottom line, but hurt its suppliers. Sainsbury gains the interest from withholding the funds, in essence having its suppliers pay more to do business with the grocer. Suppliers will have little choice but to adjust. It’s not right.
Every company wants to succeed on a fair and balanced playing field. Suppliers as well as Sainsbury have bills to pay and they should do in a timely manner.
Sainsbury’s decision to “Sains-bury” its suppliers by using suppliers’ cash for another 45 days is a rogue power play. The application of such power, like a desolating pestilence, pollutes whatever it touches.
It is very unfortunate that Sainsbury is profiting by leaning on its suppliers, which is having an adverse affect on the “little guys.” All suppliers need to stand up to this imposition of terms that are 2.5 less favorable to them.
In addition, action by customers, namely shoppers, demanding the same extended terms might bring the issue into clearer focus.
Every company should have the right to set its own payment terms. Suppliers then can elect to agree to those terms and do business with the company or not.
Companies should also have the right to periodically change those terms, but should not be able to do so during an existing agreement term. What Sainsbury is doing is basically bullying its suppliers by using its large purchasing power to say “I can do what I want and you have to accept it.”
As a small business owner myself, I know the pain that slow pay can bring. Most small businesses are trying to compete on price with larger companies, have expenses that are paid long before the service or product is shipped to a retailer and don’t have the credit that large publicly owned companies have. “Industry standards,” particularly in the grocery business, are still skewed in the retailers’ favor. Most retailers in grocery are turning their inventory every 14 days, which still allows for 2 weeks of “float.”
Sainsbury is way out of line! This decision will probably impact Sainsbury favorably and force suppliers to scramble to recoup costs. Not good for suppliers.
This is another way of intimidating suppliers who want to do business with them. It is a shame that these big companies pull this outrageous stuff without proper notice, thinking they can do whatever they want, and get away with it. There will be some small vendors walking away from this situation, as the cash crunch doesn’t make it worth their while to keep doing business with Sainsbury.
What a great partner they must be … NOT! Building your business on the backs of staff or vendors is unethical and short sighted.
I’m just a small business operator, so I tell all my clients right up front I’m not in the financing business so when my invoice says “due upon receipt” they get it. 24 years in business and only 2 or 3 clients haven’t understood that point of view.
Here’s what I know: treat your staff and vendors like partners, and they’ll give you so much more back than you’ve ever asked for.
This decision will have an effect for suppliers who have to manage their cash flow in order to remain viable. Likely many of these suppliers will in turn delay payments to their suppliers, who will in turn begin to face cash flow issues.
Terms such as Sainsbury’s imposes are manageable if communicated up front allowing the suppliers to add the carrying cost into the product cost and provide them time to better plan/manage their own cash flow needs.
Sainsbury’s seems to be performing as well or better than many retailers in the UK. It is a bit of a mystery to me why they would impose this in such a seemingly unfair manner.
Cash flow is imperative for small business owners. Sainsbury should be ashamed of their arrogant behavior and their claim that this aligns with “industry standards.” This is just another way to make their financials better at the cost of their vendors. The immediacy of these extensions could certainly suggest far less stability that Sainsbury’s reassurances suggest. There is simply no excuse for Sainsbury’s appalling behavior.
I truly wish the best for their vendors and hope economic conditions improve so they can find better business partners. It will be interesting to watch how the transparency and community of the digitally connected consumers will affect Sainsbury’s decision in the days and weeks to come.
Are they partners or suppliers? That’s the question. If they are suppliers terms go to the buyers. Partners, on the other hand, may have a say in payment terms and overall terms of business.
If I were a supplier to Sainsbury’s, I would be concerned about my future. Particularly in a challenging economy, it is disgraceful that a large company would penalize smaller businesses with such a significant payment shift.
If the industry standard is longer than Sainsbury’s traditional payment schedule, the company should have first done a better job of educating its suppliers about the potential of a future change, gained input and feedback, then possibly implemented some changes in more considered smaller increments.
You should never underestimate the value of a positive, give-and-take relationship and its effect on future success.
I am not sure how this will help the bottom line. But for sure will help cash flow. From a small business perspective, which I am, this can be devistating and possibly door closing if Sainsbury is their major customer. Again, from my perspective, if Sansbury is a major client, I have to look to other ways to survive the 45 day gap.
Then you have to hope (pray from a small business perspective) they honor the commitment and not just the old “check is in the mail response. More often than not in these situations they will wait until the 75 days to start questioning invoices further delaying the payments.
Now catch this delaying tactic: there are companies who will say the “75” days do not start until the invoice is approved. Imagine them saying there is a problem with an invoice on the 75th day, it is approved on the 80th day and now due to be paid on the 155th day. Good luck!
Those with clout will usually put the squeeze on them that don’t.
Speaking as a small supplier to some much larger businesses I’d like to voice my support and appreciation for companies that adhere faithfully and ethically to a 30-day policy. Cash flow is in many ways more important than absolute revenue. I always discuss payment terms when negotiating a project fee and write them into statements of work.
Sainsbury will certainly gain a short-term cash-flow bump with this maneuver. Once that benefit is absorbed, all it will have left is a pack of less-trusting suppliers who calculate the additional cost of capital into their net pricing.
Yes and no. As CEO of Sainsbury, why not? It’s my job. It is my commitment to the shareholders. As a supplier, changing terms without choice is crippling.
From my own personal experience, my start-up company’s first order from one of the big 3 drug chains back in 2005 was over $2,000,000. That would have made the company. The terms of the sale were net 30 days. Yes, that is what the PO said. In the first 30 days, we were paid just over $200,000 and told they would pay us the rest when the inventory was sold.
Would they do this to P&G or Colgate? Of course not. But in talking to other small suppliers, I found too late, that they did it all the time and in fact put several out of business.
Small companies have little cash and little resources. The legal system is tipped heavily to large firms with significant resources.
Did this drug chain do the right thing for their company, yes. Did they do the right thing for mine, no.
Unfortunately this is a strong-arm move that may work very negatively on Sainsbury and its “partnership” with its suppliers. Too often I have seen arrogance such as this bite at the backside of the perpetrator.
To build on what Steve said – and in response to Gene’s “why not?” – a unilateral, mid-course change in payment sounds like worse than “not right”, it sounds like breach of contract; of course I don’t know what their contracts actually say, and they may have a “when we bloody well feel like it” clause in them. But in general, borderline ethical moves like this ultimately invite government intervention: we don’t treat shoplifting as a civil matter with the excuse that a store did business voluntarily with someone (or tried to), why, ultimately, should we not also treat this as theft ??
Seems simple to me. Just required prepayment up front or at least a substantial down payment. I have no problem getting customers to prepay. For new customers, I often charge 105% upfront. If a company is taking too long to pay they are obviously having financial troubles, so it’s best to put them on C.O.D.
I am not a fan. This is the opposite of leadership. I believe in the theory that like attracts like. The best talent and companies will stay away from them for decisions like this.
This is not only unethical, but changing the terms of a contract, mid-way through the contract is illegal. Sainsbury’s needs to be shown the judicial strength of a lawsuit to truly understand that contractual payments to its supplier partners must be upheld or they will suffer the consequences just like any other business.