B2B Payments

Will Tesco Inquiry Bring Sea Change To UK Payments?

In the United Kingdom, tremors over late payments may be spilling over into a seismic event.

As reported by various news outlets, the Groceries Code Adjudicator said Tuesday (Jan. 26) that Tesco, the supermarket giant, had “knowingly delayed paying money to suppliers in order to improve its own financial position” during a period that lasted from June 2013 to Feb. 2015. The company has countered that it has changed its practices since then and no longer uses such financial levers to boost results reported to shareholders.

But the practice was so widespread, said regulators, that more than half of the suppliers questioned had been paid late by Tesco — in some cases, by more than a year. A number of methodologies were employed by the supermarket chain, all factoring in delayed payments, including incorrectly input data and deductions taken from suppliers.

Regulators also said Tesco seemed to merely process invoices sporadically and was hit with a flood of payment requests often towards the end of a reporting period, according to reports. Authorities also found evidence that Tesco issued duplicate invoices and failed to correct errors in its AP departments even when they were found.

“The length of the delays, their widespread nature and the range of Tesco’s unreasonable practices and behaviors towards suppliers concerned me. I was also troubled to see Tesco, at times, prioritizing its own finances over treating suppliers fairly,” said Groceries Code Adjudicator Christine Tacon in the final report. “My recommendations will deal with the weaknesses in Tesco’s practices during the period under investigation.”

In response, Tesco Chief Executive Dave Lewis, who came into the position just weeks before revelations in Sept. 2014 that the company overstated profits, issued this statement:

“In Jan. 2015, we made material changes to our business that addressed the majority of the historic practices referred to in the report,” he said. “We have changed the way we work by reorganizing, refocusing and retraining our teams, and we will continue to work in a way which is consistent with the recommendations.”

Hanging on to payables is one way a company can conserve cash going out the door, thus boosting results and cash flow from operations.

And yet, though the adjudicator has no real actions to take, having been granted the authority to levy fines too late in the game to exercise it, something more profound may be brewing.

In the wake of the Tesco revelations, as Newsweek reported, the Federation of Small Businesses said: “For too long, large firms have been free to abuse their relationship with smaller suppliers.” The group went on to say that “a full public inquiry” is needed in order to “strengthen the prompt payment code.” Such an inquiry, a spokesperson said to Newsweek, would do well to expand beyond individual companies and the supermarket industry to investigate practices in other arenas, such as engineering or construction.

The U.K.’s Prompt Payment Code today is far from enforceable. The code, though backed by the federal government, is merely a promise among corporations to pay their suppliers within a reasonable time.

Certainly, the late payments problem is a pervasive one in the U.K. Analysis released just recently from small business insurance firm Zurich shows that small and mid-sized suppliers in the U.K. are owed as much as $365 billion, equal to more than a million dollars for each of 43,000 enterprises of that size and scope in the country. That hurts cash flow, according to 41 percent of respondents, and as many as half of those surveyed said that the U.K. is not doing what it can (and should) to address the problem.

Last year, however, federal officials vowed to act. Lawmakers last year largely ran on a platform that planned to introduce legislation to crack down on late payments should they be re-elected into office following last May’s elections. Those officials said legislation would be introduced in April of this year, though it is unclear whether that timetable still stands.

An opening, real salvo may have been fired by the government late last week, when at least one member of Parliament, Alok Sharma, got the green light to stage what is known as a “Westminster Hall debate” on late payments, The Independent reported. That allows the issue to be examined and discussed by lawmakers. Sharma called for a Web campaign, wherein chronic late payers could be publicly shamed on such practices.

It may be enough that a widespread public debate, with a push in parliamentary halls, brings change to the late payments issue that is endemic to the nation. It may be that Tesco is the disclosure that pushes the supply chain (in general) into better discipline, else the economy will truly suffer. Or might there be a collective sigh, and business owners will have to carry on with the proverbial (and proverbially British) stiff upper lip?

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