Mars, Kellogg's and Fonterra push out payment times then lend to small business
Massive brands including Mars, Kellogg's and Fonterra have been accused of extortion-like behaviour by Australia's small business and family enterprise ombudsman.
In the course of Kate Carnell's inquiry into payment times she has uncovered a pattern of global giants pushing out payments to small businesses and then offering the same small businesses loans to keep them afloat.
"It's pretty close to extortion really," Carnell said. "Large multinational businesses' payment terms have blown out considerably. They are now moving to have standard contractual payment times of up to 120 days. It's really bad for midsize businesses and a shocker for the SME space. It will kill SMEs."
The clincher comes when small Australian businesses struggle to survive while waiting up to 120 days to be paid for their products or work.
"What we are seeing is that some of those big companies expect that this will cause some cash flow problems and are offering finance," Carnell said. "I must admit I thought it must be an unusual scenario but now we have seen this sort of approach is quite systemic."
Carnell says large fast-moving consumer goods companies including Mars, Kellogg's and Fonterra all offer loan arrangements to small businesses.
"Mining companies are bad, the big construction companies are bad, it seems that the worst offenders are those multinationals headquartered out of the United States," she said.
"What's being put by these companies is, 'in your contract is 120 days, but we have an arrangement with the bank where you can get a loan and we can organise that at a few percentage points lower than the market and we are using our size to deliver that so aren't we good?'"
But Carnell sees nothing good for small business in the arrangement.
"The only reason [the small businesses] need the money is they are being paid really slowly," she said.
Peter Strong, chief executive of the Council of Small Business Australia, agrees the loan agreements are a "rip-off".
"It's worse than I thought," he said. "[Big businesses] are using the system they have created to their own advantage and to the disadvantage of small business. I'm quite worried that its a deliberate structural thing to leverage more money out of the system."
Strong says legislation is needed requiring small businesses to be paid by a certain time.
"Small business is between a rock and a hard place," he said.
MARS 'UNDERSTANDS THE CONCERN'
Mars is one of the global companies singled out by Carnell and a spokesperson for the food giant confirmed it does have payment terms of up to 120 days and offers finance to small businesses.
The spokesperson says of the 2000 suppliers Mars does business with in Australia only 6 per cent have payment times of 120 days and of these approximately half are small-to-medium enterprises.
"Mars understands the concern of the small business and family enterprise ombudsman about the impact of
extended payment terms on small suppliers," the spokesperson said.
The spokesperson says the remaining 94 per cent of Mars suppliers have payment terms "significantly less" than 120 days with 91 per cent on payment terms of 60 days or less.
"Any supplier agreeing to Mars' extended payment terms also has access to a supplier financing programme through which the supplier may access finance at the favourable rates available to a larger organisation like Mars," the spokesperson said. "Some suppliers have chosen longer payment terms in order to access the supplier financing programme."
The spokesperson says two-thirds of those SMEs with payment terms of 120 days have accessed its "supplier financing programme".
The spokesperson declined to reveal which lenders provide the financing, the interest rates charged and whether Mars benefits from the arrangement as this is "commercial in confidence".
FONTERRA OFFERS FINANCE
The world's largest dairy exporter, Fonterra, also confirmed it is offering finance to small businesses.
A spokesperson for Fonterra says globally Fonterra has a standard payment term of 61 days from the end of the month that the invoice was sent (a potential payment lag of 92 days).
"However, we do take the needs of smaller businesses into consideration and work with them individually to reach an agreement that meets their business' needs," the spokesperson said.
The dairy giant offers a "number of options" for payment including instant credit card payments for smaller purchases up to $1000 and supply chain finance.
"Supply chain finance works with the vendor selling their approved Fonterra invoice to a third-party funder, and for a small discount they receive early payment of that invoice," the spokesperson said. "The discount varies depending on how early the vendor requests payment. Our vendors get the benefit of Fonterra's excellent credit rating and the discount can amount to less than half a per cent of the invoice."
Fonterra uses Prime Revenue to offer its supply chain finance and Fonterra's spokesperson said "we receive a small discount for early payment of the invoice, but other than that, there are no benefits to Fonterra".
BENEFIT FOR KELLOGG SUPPLIERS
Cereal and snack manufacturer Kellogg's confirmed it has moved its payment terms to 120 days.
"As part of this new approach most of our suppliers are able to benefit from a supply chain financing model which means that they can access their payment in as little as 24 hours once approved," Shanaka Wijesuriya, chief financial officer of Kellogg Australia & New Zealand said. "This helps businesses manage their own cash flow and in some cases, they benefit from better financing rates."
Kellogg's refused to detail who provides the finance to its suppliers, what the interest rate is or whether Kellogg's benefits from the loans.
Australia's small business and family enterprise ombudsman's inquiry into payment times received over 3000 submissions and is due to report shortly.
- Sydney Morning Herald