FDs face three-month wait for bank funds

Delivery duties: Tesco has extended its payment terms to 60 days

FDs of businesses supplying corporate giants are in for a tough three months before the liquidity injection given to the high street banks filters through to short-term funding for overdrafts, remortgaging property and commercial loans.

Martin Williams of Graydon issued the warning after Tesco came under fire for extending its payment terms to its suppliers to 60 days.

He said: ‘The liquidity situation is going to get serious. It’s going to be a good three months before the banks put the money back into the system.’

The financial crisis has seen funding dry up between banks, which has had the knock-on effect of the lenders tightening up the borrowing available to their business clients. These smaller companies have been put under even greater pressure of folding as large companies including Sainsbury’s, Asda, Tesco and Argos extend the amount of time they wait before paying invoices.

‘There has been a general indication that more and more of the larger organisations are doing this,’ said Williams. ‘They are looking to improve their bottom line result and cashflow by putting the squeeze on suppliers of all sizes.’

Brian Shanahan of cash flow consultants REL said: ‘The fact that Tesco and others are trying to extend terms to 60 days is no surprise. We already have Argos extending terms to 105 days and other retailers are attempting similar strategies.’

Payment terms of 105 days could see companies waiting 135 days for payment in the worst cases because clients could exercise their right to pay a month after receiving the invoice.

Shanahan added that the tough stance taken by the big corporates could see suppliers going under.

‘At best, they’ll damage their relationship with these smaller suppliers. Some may even walk away from the relationship. At worst, Tesco’s actions could even put some of their suppliers out of business.’