Tesco reprimanded over treatment of suppliers

Supermarket giant Tesco will be censured by the Groceries Code Adjudicator (GCA), following a year-long investigation into its payment terms.

Britain’s biggest retailer breached the Groceries Supply Code of Practice by delaying payments to suppliers and demanding extra fees, according to the findings of a year-long investigation.

The allegations stated that Tesco delayed payments to suppliers and demanded payments from businesses for more prominent positioning of their products within stores. Tesco has admitted there are likely to have been instances where it breached the Code of Practice.

In its annual report, Tesco said: “Regrettably, we have concluded that there have been a number of instances of probable breaches of the Code, which fall short of the high standards we expect to uphold in our dealings with our suppliers.”

In September 2014, Dave Lewis, Tesco’s chief executive, revealed that a shortfall had been found in the retailer’s accounts relating to payments from suppliers. Tesco was accused of bringing forward payments to flatter its financial results. The company suspended nine executives, and chairman Sir Richard Broadbent left in the aftermath of the scandal.

But the GCA cannot fine Tesco for the results of this investigation, because the offences were allegedly committed before the government handed the GCA the power last year to fine a company up to 1% of its annual revenue. The investigation is the GCA’s first since it was launched in 2013.

Good for small businesses

Tracy Ewen, managing director of IGF Invoice Finance, said: “The news that the GCA will reprimand Tesco over its treatment of suppliers is good news for small businesses in the UK. For many in the supply chain, Tesco’s payment terms have been unsustainable due to delays in payments and unexpected changes in contract terms.

“This is a reality that SMEs [small and medium-sized enterprises] have had very little power to change in the past; the GCA stepping in to censure Tesco over its behaviour is a step forward in helping small businesses tackle the constant stream of unfair payment terms coming from large corporations.”

Tesco announced last year that it planned to simplify its payment terms, however these will not be brought into effect until June.

She added: “Suppliers have been left waiting for the news of the Small Business Commissioner, which was promised as part of the Enterprise Bill, so substantial support from government is still uncertain. In the meantime, there are options available to smaller suppliers to cover the gap between completed work and money in the bank. Businesses must ensure to make use of any free financial advice available, before pressure from larger customers impacts their growth or operations.”

There is no direct link between this and the Serious Fraud Office (SFO) investigation into a £326m accounting scandal at Tesco, which is nearing its completion. The retailer could face a fine of up to £500m for this, according to City analysts.

Tesco, the SFO and the GCA declined to comment. Tesco’s share price dropped by almost 3% on 25 January. 

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