Mars chiefs DOUBLE the delay before its suppliers are paid
Fury as American food giant owned by billionaire dynasty makes firms wait four months – or suffer cuts in prices if they want cash sooner
MARS has been accused of putting the squeeze on suppliers by trying to delay paying bills for as long as four months.
The move has prompted one of Britain’s biggest trade organisations to write to the Government and step up its campaign for smaller firms to be protected from corporations that are slow to pay their bills.
The Forum of Private Business said Mars, the third largest privately owned company in the US, is the latest to push payments to some suppliers back as far as four months – twice its previous limit.
Mars, which makes not just confectionery but other food such as Uncle Ben’s rice, and pet food, is approaching firms over plans to extend the period which they have to wait to be paid from 60 to 120 days.
It has also set up a ‘supply chain finance scheme’, to allow suppliers to be paid earlier, but only if they pay extra fees. Suppliers have condemned the move, which is expected to cost firms millions of pounds.
Mars is still owned by the notoriously secretive Mars family. Chairman John Mars and siblings Forrest and Jacqueline, are thought to be worth $11billion each (£6.5billion).
The group has annual sales of $33billion and its UK operations are held by Effem Holdings, which reported sales of £2.7 billion last year and profits of £400million.
‘Companies plan their finances years ahead and to suddenly be told you are not going to get paid for another two months by a big supplier can have serious consequences. It
can even be potentially fatal,’ said Alexander Jackman, head of policy at the FPB.
‘I understand suppliers are sometimes asked to contribute to a company’s growth plan, but this isn’t about that. We’re highlighting this and other ways companies use suppliers to support their own finances when things get tough,’ he said.
Jackman said the FPB sent a letter to the Government on Friday. He said the forum also plans to become ‘more aggressive’ by reporting companies direct to the Competition & Markets Authority if they believe they breach competition rules.
The decision by Mars follows growing concerns that big food companies and supermarkets are putting pressure on smaller firms to cover shortfalls in sales and profit.
Last week The Mail on Sunday revealed that farmers and food processing plants were emerging as the first casualties of the supermar- ket price war, with warnings of plunging returns. The average price paid to farmers for meat has slumped by 12.5 per cent over the past year, according to the National Farmers’ Union. But it said the fall had not been passed on to shoppers and was being used to discount other goods.
Mars’s suppliers have reacted angrily. One senior source at a multimillion-pound food group told The Mail on Sunday last night: ‘I’m really p***** off. We were told of the plan and figured we would just have to sign up or lose the business. They are releasing a massive chunk of working capital for themselves and their suppliers are paying for it.’
The supplier, who asked not to be named for fear of angering Mars, added: ‘Its claim is that this is industry standard but I don’t believe that. My worry is this will open the floodgates for similar firms to follow suit and that would cripple us,’ he said.
‘The irony is that it is small and medium-sized firms leading us out of this downturn and taking on more staff, but activity like this sponges up capital and prevents that.’
Mars is not the only group under the spotlight for its ‘supply chain finance scheme’. These are meant to finance suppliers by ensuring their invoices are paid promptly or even in advance and the Government has supported them as a way of lessening the burden on growing firms thirsty for cash.
But the FPB fears some big groups are agreeing to pay more promptly but only in exchange for swingeing cuts in the price they pay.
The Department for Business Innovation & Skills is poised to publish responses to its consultation paper entitled Late Payment of Finance: Building a Responsible Payment Culture. Some responses are thought to have called for a cap on the length of payment terms.
Certain European countries, such as France, limit the time companies are allowed to delay payment to two months. But lobby groups have been desperate to make it clear to the Government and large firms that providing suppliers with finance options should not be a means of extending payment waiting times.
Britain’s largest food manufacturer, Premier Foods, was criticised for demanding small firms pay £5,000 to remain on its list of preferred suppliers. Premier, whose brands include Oxo, Sharwood’s and Ambrosia, is believed to looking to ease its £531million debt pile.
The FPB has placed Premier Foods on its ‘Hall of Shame’ of slow-paying firms and says Mars is likely to follow, pending an investigation.
Mars said: ‘While our objective is 120 days, there is a spectrum of days payable with each of our vendors based on factors including geography and scope. The reason we made this move is to align closer to the trends of our peers.
‘Many of our suppliers have opted for longer payable terms to utilise our financing approach which gives them greater financial flexibility.’