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Diageo using finance scheme to cover poor payment practice says Forum

Drinks giant Diageo is the latest company to introduce a new supply chain finance scheme as cover for extending payment times to suppliers, according to correspondence obtained by national small business organisation the Forum of Private Business.

This move from the leading UK drinks manufacturer has been openly presented to suppliers as a new scheme to improve company’s own cash flow and drive down its costs.

The lobby group for small business says Mars, Debenhams and Monsoon have carried similar, cynical exercises in the past twelve months.

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’.

Diageo now appears to have broken its commitment as a signatory of the Prompt Payment Code. This episode further highlights the need for urgent action in order to tighten the existing rules around the Code, the Forum believes.

The Forum of Private Business is a supporter of supply chain finance schemes in the right circumstances, but believes that such schemes should not be used as a justification for a company extending payment times to its suppliers. As a result, the Forum will be writing to Diageo to clarify the extent of the changes for its supply chain.

Commenting on Diageo, Phil Orford MBE, Chief Executive of the Forum of Private Business, 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.”

For further comment, please call our press office on 01565 626016 or email john.walding@fpb.org.

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