Supermarkets that routinely withhold payment from suppliers could be forced to change their practices in future if the Competition Commission’s recommendation for an ombudsman is adopted.

Suppliers often face cashflow problems as supermarkets frequently pay only part of their invoices on time and dispute other parts, or apply retrospective changes to the agreed terms of supply.

Under provisional decisions handed down by the commission last week, an extended code of practice would be set up, and an ombudsman created to police it.

A commission spokesman said that while there is a system that deals with disputes, it is not being widely utilised and the commission felt an independent arbitrator was necessary. But the proposals to force supermarkets to pay within 30 days were rejected as ‘too interventionist.’

‘However, anything that falls under the supplier supermarket relationship could be dealt with under the overriding fair dealing clause we have included,’ he said.

The provisional decisions also include recommendations that supermarkets cannot make retrospective changes to terms without agreement and financial penalties for non-compliant retailers.

Martin Williams of credit reference agency Graydon was among those who made submissions. He said the ‘pay and deduct’ practice was of particular concern to suppliers.

‘They abuse their power by disputing part of an invoice and leaving the supplier waiting for the rest of their money,’ he said. ‘Time will tell if the proposed ombudsman has any muscle,’ he added.

Tesco executive director for corporate and legal affairs Lucy Neville-Rolfe said: ‘An ombudsman could be bureaucratic and an unnecessary cog in a supply chain that has worked well for consumers.’