When prudence becomes cheating

Clout is what power gives you. Wealth is power, so the wealthy have a lot of clout. It is inevitable that they use it for the benefit of themselves and their organisations. Capitalism, on the other hand, works when the rules of the game are clear, understood and observed. The rules of the capitalist game are that competition on as level a playing field as possible yields the best deal for the consumer, not necessarily in only the short term.

The British Grocery Code Adjudicator, Ms Christine Tacon, has decided that Tesco, that giant of the supermarket world, has cheated its suppliers by paying them less than they were owed and delaying payments way beyond the 30 days they had contracted to be paid. Ms Tacon pointed out that this is unfair to suppliers. It may have benefitted consumers in the very short term and will certainly have been of major advantage to Tesco management trying to keep its cash flow positive. But level playing field it is not.

Tesco came to our notice last year when they announced that they had discovered a ‘£263m hole in their profits’. The Serious Fraud Squad are still investigating that. Meanwhile, the behaviour of Tesco towards its suppliers went beyond stealing money by delayed payments. The company failed to correct wrong records, issued duplicate invoices and, in some cases, failed to make payments for years. How are the mighty fallen.

Every supplier in the world knows the nightmare of delayed customer payments. In particular, today, when suppliers are often small, quite new companies, delayed payments can bankrupt a business. It is significant that from the moment Marks & Spencer changed its policy of paying suppliers on sight of invoice to taking the maximum possible credit – and more – they started to go downhill. I am sure there were other reasons as well but they did manage to bankrupt some major suppliers by asserting their clout unfairly and unwisely.

Governments have never seen it as their job to force prompt payments according to contract. I think it is time that they did. It presents problems, of course, especially with so much international trade but the World Trade Organisation have enough clout of their own to make a start. Why on earth don’t they do so?

It has been a policy of mine throughout my business life to pay suppliers on sight of invoice and argue, if necessary, afterwards. I have enforced that policy in every business I have worked in. It has paid handsomely many times. Genuinely urgent work gets best attention and if there is a conflict of priorities at a supplier’s, my business gets first bite of the cherry.

Competition is great but only when battled out on a level playing field.

Even the sports world is discovering that.

Management is confusingly complicated when the
need to aim competes with the need to see – JRB