Flight Centre defends move to delay payments to suppliers

Flight Centre is delaying payments to suppliers in an effort to sandbag its balance sheet.

Flight Centre says it is ‘looking to standardise payments to suppliers on a 45-day cycle. Picture: AAP

Travel agency Flight Centre is delaying payments to suppliers in an effort to sandbag its balance sheet, weakened by government-imposed travel bans to fight the coronavirus pandemic.

While the company is battling for its survival, Small Business Ombudsman Kate Carnell says passing on its pain to suppliers is not acceptable.

Flight Centre has extended its supplier payment terms to 45 days — 15 days longer than the maximum companies must pay small businesses under the Business Council of Australia’s voluntary supplier payment code.

It joins Solomon Lew’s Just Group, which has pushed out supplier payments to 180 days, and women’s clothing group, Sussan, which has told its suppliers they must wait three months to get paid as companies move to shield themselves against COVID-19.

Flight Centre has already negotiated $700m capital raising and will close more than half of its leisure stores around the world for good, including 40 per cent of its local retail outlets, with managing director Graham Turner declaring the measures were “about business survival”.

It has also negotiated a further $200m from its existing lenders, adding that its new cost-cutting regime would slash its annual operating expenses by $1.9bn from July 2020. But the company has now turned to its suppliers, pleading with them to offer any ideas to deliver further efficiencies.

A Flight Centre spokesman said the company was “looking to standardise payments to suppliers on a 45-day cycle”, stating that current supplier payments varied from a week to more than 60 days.

“It does become quite difficult to manage and overly complicated,” the spokesman said.

“The level of complication is only going to increase, given that a large number of workers across all industries are now being stood down, so it is logical to standardise and simplify as much as possible.

“Other companies are also taking a similar approach with us and we believe it is likely to become more common in the current climate.”

The company said it would work with suppliers who were previously on shorter payment cycles on a case-by-case basis. “We obviously need to be conscious of the cash flow impacts on smaller businesses, particularly during any transition period.”

In regard to what more suppliers could do, the Flight Centre spokesman said: “In some cases we will owe our travel-based suppliers money and they, in turn, owe money back to us. We can try to make that more efficient by offsetting owed versus received”.

But Ms Carnell said smaller suppliers needed to be paid on time or earlier, given lack of cash flow was the leading cause of insolvency in Australia.

“You need to do everything you can before you go down the path of not paying a small business on time because you are then slowing down the economy and that doesn’t help anyone,” Ms Carnell said. “As more and more big companies go down this path it's going to leave the government with little choice but to introduce more legislation and no business wants more red tape.”

Ms Carnell will include the impact of COVID-19 on supplier payments in her Supply Chain Financing Review, which is expected to be released later this month.