Supermarket giant Woolworths has followed rival Coles in committing to paying its suppliers faster.
But this won’t stop suppliers using finance firms to bridge them over until the supermarkets’ payments come through, according to investment bank Goldman Sachs.
From July 1 this year, Woolworths will pay suppliers with net sales to Woolworths of less than $1 million in 14 days. Photo: Brendon Thorne
Wesfarmers-owned supermarket Coles recently announced it would pay within 14 days small suppliers who supply up to $1 million worth of products a year, down from about 30 days.
Woolworths has followed suit, telling Fairfax Media: “From July 1 this year, Woolworths Supermarkets will pay suppliers with net sales to Woolworths of less than $1 million in 14 days.
Kate Carnell AO, Small Business and Family Enterprise Ombudsman Photo: Louie Douvis
“Most of our fresh food suppliers are paid on a weekly basis and payment structure is based on the agreement reached between them and Woolworths.”
Relationships between supermarkets and their suppliers have been in the spotlight for many years, culminating in the competition regulator taking legal action against both big chains.
Coles in late 2014 admitted to 15 instances of unconscionable conduct against eight suppliers.
Woolworths late last year won its case against the competition regulator when a Federal Court ruled it did not act unconscionably when it demanded up to $60 million in cash from suppliers to plug a profit shortfall.
Debtor finance growth to continue: Goldman Sachs
The sharemarket-listed Scottish Pacific provides funding to companies based on their outstanding sales invoices. Many of these companies supply Coles.
But Goldman Sachs said Coles’ shorter payment terms would have a “minimal impact” on Scottish Pacific, because only a small number of suppliers to Coles are that small.
“Although Wesfarmers is a top 10 debtor to Southern Pacific by exposure, making up less than 2 per cent of its total exposure, we estimate that the overall impact will be much less, with Coles’ smaller suppliers (less than $1 million in sales) accounting for less than 10 per cent of Coles’ volume by value,” it said.
Goldman Sachs has also downplayed a report into small-business payment terms and what it will mean for financiers.
The Australian Small Business and Family Enterprise Ombudsman’s inquiry was released today and has attracted about 3000 submissions.
The inquiry has revealed that some big firms are offering loans to their customers – while pushing out payment terms to up to 120 days.
“It’s pretty close to extortion really,” ombudsman Kate Carnell told Fairfax Media. Food giants Kellogg’s, Fonterra and Mars all confirmed they had payment terms of up 120 days, and provided finance to their customers.
But Goldmans said it did not expect the ombudsman’s inquiry to have a “material impact on debtor finance turnover growth.”
“Looking to the UK as an example, the introduction of payment term regulation did not have a material impact with invoice finance turnover growth continuing to be robust (7.5 per cent compound annual growth rate between 2010 and 2015).”