Woolworths to follow Coles with 14-day payment terms as supermarkets chase good relationships with suppliers

Woolworths will follow a commitment from Coles to pay small suppliers within 14 days as the big two supermarkets pledge to lead the way in solving the country’s problematic late payments trend, in the belief smooth relationships with small operators is good for business.

On the same day Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell released the report from her inquiry into payment terms and times, Woolworths told Fairfax it would commit to paying within 14 days for merchandise suppliers with net sales of less than $1 million.

Coles chief executive John Durkan made the same pledge in March, saying in a statement to SmartCompany that “by providing a little extra support, we want to help [suppliers’] businesses to flourish so that together we can keep providing our customers with great quality and value”.

However, Woolworths claims they already had speedy payment practices in place for a range of small suppliers, particularly those delivering fresh food.

“At Woolworths, small business suppliers of fresh foods are already generally paid between 7 and 14 days from delivery because they are either supplying fresh food, engaged under our local buying initiative or requested weekly payment terms at the start of their relationship with Woolworths,” the supermarket chain’s head of buying and merchandising Steve Donohue told SmartCompany.

The commitment to 14-day payment times has come as pressure continues mounts on the big business community to commit to maximum payment windows, with Kate Carnell and Council of Small Business of Australia chief executive Peter Strong telling SmartCompany there is value in big business leading by example when paying suppliers on time and with fair terms.

“Cashflow is king for small businesses, so for a big player like Coles — one of the country’s largest supermarket retailers — to take affirmative action on this is a welcome move that will make a big difference in the lives of hundreds of small businesses,” Carnell said in March.

SmartCompany also contacted Aldi Australia and IGA to confirm its standard payment times for small suppliers.

In a statement provided to SmartCompany, an Aldi Australia spokesperson said its payment times range from 14 to 33 days across its 1000-strong supplier network.

“We have simplified out processes to make it as easy and efficient for our suppliers as possible, allowing them more time to invest back into their businesses,” the spokesperson said.

IGA did not provide a response prior to publication.

Payment time disclosure could become compulsory

Many corners of the local business community are still getting acquainted with the recommendations from Carnell’s payment times inquiry, but one recommendation could see all big Australian retailers forced to explain exactly how and when they pay suppliers. The report recommends the federal government legislate to ensure big businesses must disclose not only their payment terms, but performance against those terms.

“When a business experiencing extended payment times is also hit with late payments, it stresses the business further, which can easily put them out of business. Poor cashflow is the primary reason for insolvency in Australia,” Carnell said yesterday.

There’s also been contention during the course of the payment times inquiry over the best way to solve slow payments and the associated effects on small business cashflow and mental health.

The Ombudsman’s report calls on the federal government to legislate maximum payment times, and while business groups, like the Australian Chamber of Commerce and Industry, have welcomed the results of the inquiry, there is caution about formal regulation and red tape.

“The business community agrees that prompt payment is critical for the financial health of many businesses and is an important feature in a well-functioning economy. But we also know that regulation can stifle business and innovation, so should be used sparingly and only after other avenues for achieving improvements are considered,” Australian Chamber chief executive James Pearson said in a statement to SmartCompany yesterday.

The big supermarkets are aware of the importance of maintaining a positive relationship with suppliers, both in terms of payment times and overall confidence in the business. In a report released for its annual general meeting in November last year, Woolworths pointed to the lack of confidence staff, customers and suppliers had shown in the Woolworths business, and said it would embark on a process of cultural change to raise the morale of suppliers.

The supermarket chain said it was making progress on improving the attitudes of suppliers towards the business, acknowledging they were coming off “a low base”.

Coles is also mindful to communicate the importance smooth supplier relationships, telling shareholders at the Wesfarmers annual general meeting last year it pays suppliers more than $45 billion annually across all Wesfarmers brands.

“Coles relies on small Australian businesses to deliver thousands of different products for our customers every day,” John Durkan said in a statement provided to SmartCompany in March.

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