Diageo, Unilever removed from Prompt Payment Code

Four Diageo companies and Unilever have been formally removed from the Prompt Payment Code (PPC) after failing to pay their bills on time.

First introduced in 2008, the voluntary code requires companies to pay 95 per cent of invoices within 30 days to their small suppliers and pay 95 per cent of all invoices within 60 days.

Both companies have had the opportunity to voluntarily withdraw their Code membership but they have not engaged with the Small Business Commissioner who runs the PPC on behalf of the Department for Business, Energy and Industrial Strategy, the Office of the Small Business Commissioner said in a statement.

“It’s always disappointing when a company can no longer reach the payment standards set by the Prompt Payment Code,” Liz Barclay, Small Business Commissioner, commented.

“The Code is there to make sure that suppliers get paid as quickly as possible and when firms leave or are removed there is a risk that payments to suppliers will be slower. We will work with the firms mentioned to get them back onto the Code as quickly as possible should they wish to return, because that’s to the benefit of the suppliers and to the companies themselves”.

Responding to the development, Diageo said the way in which the UK Payment Practice Reporting data is consolidated on the Duty to Report platform, which does not allow for SME suppliers to be differentiated from larger suppliers, is the reason for its alleged poor performance.

The business explained that they segment suppliers into two groups: ‘small-to-medium suppliers’, with less than 250 employees (SMEs); and ‘larger suppliers’, which includes multi-national companies with larger revenues and workforces.

“All of our SME suppliers are on 60-day standard payment terms, with our larger suppliers on contracts involving different payment terms, each mutually agreed on a case-by-case basis. When the payment of our larger suppliers’ invoices is consolidated with our SME payment data and reported as a single average figure, it does not provide an accurate picture of how we are meeting our contractual obligations. For example, in our January 2022 submission, 97 per cent of our SMEs and 93 per cent of all suppliers were paid to terms,” the spirits major said in a statement.

However, according to the latest Payment Practice Reporting (PPR) data, four Diageo companies – Diageo Scotland Limited, Diageo Global Supply IBC Limited, Diageo Northern Ireland Limited and Diageo Great Britain Limited – were paying only 32-42 per cent invoices within 60 days.

Unilever UK Limited was paying 51 per cent of invoices within 60 days.

The government has set a standard of 95 per cent of all supply chain invoices to be paid within 60 days for organisations who want to do business with government. Suppliers who do not comply with this standard could be prevented from winning government contracts.

Small Business Minister Paul Scully said: “As our small businesses recover from the pandemic, the last thing they need is for some big firms to hold back the cash that is owed to them. I urge the companies that have been removed from the code to get their acts together to improve their performance.”

Diageo pointed out that they were considered compliant with the code until changes were made to remove an exemption for larger suppliers.

“As the original intent of the Prompt Payment Code was a focus on SME suppliers, we firmly believe this is where our focus should be. When we originally joined the Prompt Payment Code, there was an exemption for longer terms with larger suppliers. This was no doubt in recognition of the commercial reality that these are standard practice for longer-term contracts agreed between larger companies,” it said.

The company added that they are “honouring the commercial commitments we have agreed with our supply partners” and will continue to work hard to ensure all its suppliers are paid to agreed terms, “with an acute focus on SMEs”, despite the removal from the PPC.

Diageo has 1,147 SME suppliers and 1,669 larger suppliers in the UK.