Business

Diageo rejects implications of its ouster from the Prompt Payment Code

Diageo has refuted suggestions that it systematically fails to pay its suppliers on time, with a large majority of smaller firms paid within 60 days of billing.

Responding to its formal removal from the Prompt Payment Code (PPC), the group was joined by Unilever in arguing that the code – run by the Small Business Commissioner on behalf of the Department for Business, Energy and Industrial Strategy (BEIS) – has moved the goalposts in calculating targets.

According to the PPC’s latest data, four divisions of Diageo failed to meet its standards which require 95 per cent of invoices from firms with less than 50 employees to be paid within 30 days. Across all other sizes of businesses, 95% of invoices should be paid within 60 days.

On this measure, the PPC said Diageo Scotland was paying 42% of invoices on time; Diageo Global Supply IBC 32%; Diageo Northern Ireland 33%; and Diageo Great Britain 36%.

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The PPC said multinational consumer goods group Unilever UK, which has also been removed from the code, was paying 51% of its suppliers on time.

Both companies have rejected the implications of these figures on the basis that the PPC average includes payments to each group’s largest suppliers, who in many cases are themselves multinational corporations. In these circumstances, it is common that both sides have mutually agreed longer payment terms.

“When we originally joined the Prompt Payment Code, there was an exemption for longer terms with larger suppliers,” a spokeswoman for Diageo said. “This was no doubt in recognition of the commercial reality that these are standard practice for longer-term contracts agreed between larger companies.

“Indeed, Diageo was considered compliant with the code until changes were made to remove this important exemption for larger suppliers.”

READ MORE: Increase in late payments piles pressure on small Scots firms

The group has 1,147 SME suppliers – those with less than 250 employees – in the UK, and 1,669 larger suppliers. According to its submission for January, 97% of SMEs were paid within 60 days, and 93% of all suppliers were paid to terms.

Unilever said 98% of its latest invoices were settled on time, including SMEs who are paid within 30 days. Its most recent average length of payment – including those who have agreed longer terms – was 64 days.

“Previous consideration was given that Unilever prioritised its SME suppliers with payment terms of 30 days, but this consideration was removed,” a spokesman said.

“Whilst we are disappointed with the outcome, our focus at Unilever will continue to be paying all our suppliers on time and prioritising our SME suppliers, and this will not change.”

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