Johnnie Walker owner Diageo has hit back at claims it does not pay suppliers on time after the firm was removed from the UK government’s Prompt Payment Code.
In November 2019, Diageo was among 20 companies suspended from the Prompt Payment Code (PPC) because it had failed to pay suppliers within 60 days.
The Small Business Commissioner (SBC), an independent public body set up by the government, has now formally withdrawn four Diageo subsidiaries from the Code.
Diageo Scotland, Diageo Global Supply, Diageo Northern Ireland and Diageo Great Britain failed to meet the Code’s requirements, according to the SBC.
The voluntary code requires companies to pay 95% of invoices within 30 days to small suppliers and pay 95% of all invoices within 60 days.
According to Payment Practice Reporting (PPR) data from the SBC, Diageo Scotland paid 42% of invoices within 60 days, while Diageo Global Supply IBC settled 32% of invoices within the two-month timeframe.
Furthermore, the data noted that Diageo’s Northern Ireland business paid a third of invoices within 60 days, while the company’s Great Britain arm honoured 36% of invoices over the same period.
Liz Barclay, SBC, said: “The Code is there to make sure that suppliers get paid as quickly as possible and when firms leave or are removed there is a risk that payments to suppliers will be slower.
“We will work with the firms mentioned to get them back onto the Code as quickly as possible should they wish to return, because that’s to the benefit of the suppliers and to the companies themselves.”
In a statement, Diageo said it was “fully committed to ensuring all our suppliers are paid to terms” and is working to improve its working practices, with a focus on small to medium-sized suppliers.
The Smirnoff owner said it splits its suppliers in two groups: small and medium-sized enterprises (SMEs) and large suppliers.
All of its SME suppliers are on 60-day standard payment terms, with larger suppliers on contracts involving different payment terms that are each mutually agreed on, Diageo said.
Diageo claimed the PPR data does not differentiate between SME suppliers and larger firms.
A Diageo statement said: “When the payment of our larger suppliers’ invoices is consolidated with our SME payment data and reported as a single average figure, it does not provide an accurate picture of how we are meeting our contractual obligations. For example, in our January 2022 submission, 97% of our SMEs and 93% of all suppliers were paid to terms.
“As the original intent of the Prompt Payment Code was a focus on SME suppliers, we firmly believe this is where our focus should be. When we originally joined the Prompt Payment Code, there was an exemption for longer terms with larger suppliers.
“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.”
The company also highlighted several moves it had made to improve pay practices over the last few years, including bringing forward payment runs to ensure funds were cleared for SMEs within 60 days.
Diageo said it had segmented its supplier base of 2,816 suppliers to better support SMEs. The firm currently has 1,147 SME suppliers and 1,669 larger suppliers in the UK.
Diageo also introduced its Supplier Service Hub to allow companies to track invoices and payments.
The firm added it would “continue to analyse the root cause of any late payments, including process errors caused by us or our suppliers”
“All of our suppliers, small or large, have access to preferential supplier financing options that leverage our global credit rating,” Diageo’s statement continued.
“While Diageo is no longer a member of the Prompt Payment Code, we will continue to work hard to ensure all our suppliers are paid to agreed terms, with an acute focus on SMEs.”
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Author: Nicola Carruthers