Supermarket chains put pressure on suppliers despite faster payments.(HEADLINE)(Tesco and Sainsbury)

Graydon UK, one of the UK's leading credit information agencies, reveals that there is continuing frustration felt by household name food giants in the UK when dealing with the large supermarket chains like Tesco and Sainsbury's. According to Martin Williams, Graydon's managing director, supplier cash flow is being squeezed by the supermarkets in a number of ways, even when it would appear that invoices are being paid on time.

For example, while Sainsbury's and Asda pay 93% and 86%, respectively, of their invoices under 5,000 [pounds sterling] on time, the majority of large supermarkets engage in a number of practices that can have a very negative impact on their suppliers' cash flow.

Pay and Deduct

"The biggest concern" says Williams, "relates to the accepted practice in the industry of 'pay and deduct,' whereby the supermarkets pay on terms but don't pay the full amount quoted on the supplier's invoice. A few days later, the supplier receives a debit note, spelling out why the supermarket has deducted an amount from the original invoice." In one instance cited to Williams, a large well known food manufacturer had 1 million [pounds sterling] deducted from a 7 million [pounds sterling] invoice.

The problem of supermarkets unilaterally deducting a large proportion of invoices from suppliers doesn't only hurt cash flow. When deductions are questioned and disputed by the food companies' credit and finance departments, trying to locate helpful staff within the retailers' organizations is a very time consuming and frustrating exercise. Disputes can take months to resolve, during which time large amounts are left deposited in the supermarkets' bank accounts earning interest that swells profits.

The situation is getting worse, according to another group of food industry players complaining about the same issue. One pointed to the fact that chains like Tesco had moved their supplier query lines offshore to India. Operators there often did not have the local supply chain knowledge to help resolve the deduction issues.

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