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Current as of 25/04/17 11:40AM NZST
The Business Herald’s markets and banking reporter.

Fonterra asks for a discount deal

The dairy giant is already in the firing line for extending payment terms to companies that provide it with goods and services. Photo / Michael Cunningham
The dairy giant is already in the firing line for extending payment terms to companies that provide it with goods and services. Photo / Michael Cunningham

Fonterra will offer quicker payments to suppliers - if it gets a discount in return. The dairy giant is already in the firing line for extending payment terms to companies that provide it with goods and services.

Yesterday, a Fonterra spokeswoman said the co-operative would launch a supply chain finance programme next month that would allow suppliers to receive earlier payment in return for a "small prompt payment discount".

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She was unable to give specifics on the discount, or how quickly suppliers would be paid in return.

One supplier, who requested anonymity, said he had heard a 4 per cent discount would be required.

But the Fonterra spokeswoman said that figure was "way too high".

The co-operative has already requested pricing reductions of more than 10 per cent from some suppliers, in addition to extending payment terms to 61 days after the end of the month in which the invoice is dated.

The Business Herald understands the previous arrangement was for bills to be paid on the 20th of the following month.

Suppliers have slammed the changes as unfair and challenging from a cashflow perspective.

The supplier described the prompt payment scheme as "a stunning piece of cheek".

The message that Fonterra is sending out there to the community is, 'Let's try and screw everyone over'.

"Fonterra are turning their creditors into a source of cashflow," he said. "For the pleasure of keeping their factories operational, we get to pay them for the privilege of getting paid on time."

Steve Levet, president of industry group Rural Contractors New Zealand, said discounts in return for earlier payment were relatively common in business.

However, he was disappointed with the approach Fonterra was taking towards its suppliers.

"The message that Fonterra is sending out there to the community is, 'Let's try and screw everyone over'," Levet said.

He said suppliers to the rural sector already had to offer competitive rates in order to remain in business and were only just getting by.

There appears to be no chance of them conceding that what they are doing is very poor corporate behaviour and flies completely in the face of what their owners [farmers] stand for.

"I think Fonterra are doing a lot of back-pedalling at the moment because they've shot themselves in the foot all the way round, from the salaries some of them are getting to the lavish expenditure they've had," Levet said.

"And yet in the next breath they're trying to get suppliers of services to work for the breadline."

University of Waikato professor of agribusiness Jacqueline Rowarth said the scheme for earlier payment was "extraordinary".

"[Fonterra should] just pay them what they're due when they are due it."

This week, Fonterra chief financial officer Lukas Paravicini wilted under aggressive questioning over supplier payments on the Paul Henry show.

The supplier said he was stunned by the way Paravicini portrayed himself and the company during the interview.

"There appears to be no chance of them conceding that what they are doing is very poor corporate behaviour and flies completely in the face of what their owners [farmers] stand for." Last week Paravicini said the changes to payment terms affected about 20 per cent of Fonterra's 18,000 to 20,000 suppliers worldwide.

"This work has been under way for six months and is part of our wider business transformation, which we announced nearly a year ago," he said. "It is about being efficient as possible and driving as much cash back to our farmers as possible."

- NZ Herald

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