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Supermarkets’ “pay-on-scan” scam ups ante on suppliers

Publish date 07 Aug 2016

The supermarket giants are stringing out their suppliers by signing them up to “pay-on-scan” terms where the payment period begins, not when the goods are received at the warehouse, but weeks later when they are scanned at the check-out.

Traditionally, the invoice period for grocery payment begins on delivery, when the goods actually change hands that is. Under pay-on-scan however, the invoice period begins at the point of sale to the supermarket customer when it is scanned at the check-out.

Both Coles and Woolworths confirmed this week they had deployed pay-on-scan terms, or “consignment trading”. The secretive Aldi declined to respond.

One supplier who preferred to remain anonymous said suppliers were resisting the pay-on-scan arrangements as it would take longer to be paid. “Payment times have already run out from 30 to 60 to 90 days, and in some cases now to 120”.

Early in the week it was revealed here that a couple of multinational suppliers, Fonterra and Kellogg’s, had pushed their terms out to 120 days.

Whether this is a result of pressure further up the supply chain is not known, although it is plausible. What is known is that the escalation in payment terms – increasingly aggressive behaviour on the “procurement” front that is – is reverberating across the entire sector. Indeed, it is a drag on the whole economy as delayed payments delay investment by small business.

As it may take two or three weeks for the goods to be sold to the end customer, the supermarket chains are effectively treating their suppliers as a bank by using pay-on-scan, getting them to cover the holding costs and therefore making millions of dollars in extra profit per year through their treasury operations. Many suppliers are resisting pay-on-scan as their payment terms have, in many cases, already stretched out from 30 days to 60 days and beyond.

Discussions with suppliers this week confirmed the general industry view that Woolies is the worst offender on procurement. Its management has even conceded the company’s relationship with suppliers is not good. Coles and Aldi are reportedly on better terms.

When approached for comment for this story, Woolworths denied “pay-on-scan” entailed more onerous payment terms for suppliers:

“The nature of trading on pay on scan means that suppliers are paid much sooner after the sale of the product than on the alternative invoice with goods basis,’ said a spokesman.

Generally, across all sectors, the profits to be had from delaying payments are significant, especially for large companies. Woolworths’ most recent financial statements show the company had more than $6 billion in payables on its balance sheet. The balance sheet is simply a snapshot at one point in time, and it is not possible to know the length and duration of aged creditors.

As to customer relationships, a recent survey by the Australian Food and Grocery Council showed that since the introduction of the grocery code of conduct, some 80 per cent of respondents said Woolies’ behaviour had either stayed the same or worsened in the past year. More than half of those suppliers surveyed said the supermarket giant “rarely” or “never” complied with the grocery code.

Less than half the suppliers surveyed (47 per cent) felt Coles’ behaviour had worsened or stayed the same and 43 per cent believed it had improved, while two-thirds of suppliers said Coles “mostly” complied with the code.

Damian Arena, chief executive of IODM, a software company which automates the process of chasing invoices, sees the invoice delays as a growing problem for Australian commerce, and small to medium enterprises particularly: “61-90 days outstanding has risen 22 per cent and 90 days and longer has increased 15 per cent”.

“(It’s) the hidden costs of carrying bad debt – every $50,000 of debtors costs an extra $8,000 due to lost opportunities, overdraft rates, foregone bank interest, tying up resources,” he said.

While the grocery supply chain is perhaps the most publicised offender, delayed invoicing is a national problem which pervades most sectors.

According to IODM analysis, the motor vehicle industry is also a long-term offender for long payment terms and “holding suppliers to ransom”. Feedback this week indicated the construction sector was also an offender, along with hospitality and even, in many cases, government.

For it’s part, the government would do well to introduce a 30-day ceiling on payments for business. Except in times of unusual stress, there is no reason companies can’t pay their suppliers in 30 days, or less.

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