Rio Tinto drops demands for suppliers to discount for prompt payment
Rio Tinto has dumped its controversial ‘dynamic discounting’ scheme following mounting outrage.
Rio Tinto has dumped its controversial “dynamic discounting” scheme, following mounting outrage from suppliers and political pressure over the practice that urged suppliers to cut their invoices in exchange for prompt payment.
The Australian revealed on the weekend that Rio was “agressively” pushing its so called dynamic discounting on its 10,000 Australian suppliers - which cuts invoices by about 2 per cent if a supplier wants to be paid earlier than 30 days, delivering up to hundreds of millions of dollars for the cashed up mining giant.
But Rio chief commercial officer Simon Trott said the company overturned the global policy after an internal review, which came three days after The Australian broke the story.
“Rio Tinto will no longer offer this accelerated payment option and will work on transition arrangements for those suppliers, representing about 3 per cent of Rio Tinto’s 10,000 Australian suppliers, that had selected the option,” Mr Trott said.
“Our suppliers are vital to our business success and we will continue to work to improve our partnerships with them. A supply chain of strong local suppliers is good for our business, good for local communities and good for the economy.”
Mr Trott added Rio’s on-time supplier payments rate currently stood at about 96 per cent.
This was contrary to what suppliers told The Australian, who said they had been experiencing delays in payment, following Rio shifting its global payments centre to Pune in India. One supplier said they had waited almost five months for payment, while another told The Australian it was costing them more than $20,000 a month if they wanted to be paid on time
Rio launched the payments scheme last year with San Francisco-based financial technology firm Taulia, which negotiated discounts on behalf of Rio for suppliers who wanted to be paid within 30 days.
The Australian revealed this week that Taulia was using invoice data from suppliers, combined with external “big data” sources, to work out exactly how much suppliers could be squeezed.
Federal Small Business Ombudsman Kate Carnell criticised the practice, saying it was creating a product that varied depending on how desperate a supplier was to protect their cash flow.
“This shouldn’t be that complex. Businesses should just do it (pay their suppliers within 30 days). And they shouldn’t be using these sorts of products - reverse factoring products and even worse using AI because then you don’t even have a standard product. You’ve got a product that varies based upon how desperate your supplier is - how ordinary is that?” Ms Carnell said.
Taulia also suggested its system could also decide which suppliers can be pushed into using more expensive supply chain financing options, such as that provided by controversial global financier, the Australian-born Lex Greensill.
Rio had maintained that it was paying its suppliers, with invoices totalling less than $1 million a year, within 30 days, inline with its commitments under the voluntary Australian Supplier Payment Code. But Ms Carnell and others criticised the code, saying it had too many loopholes and no reporting or audits to ensure compliance.
Western Australia premier Mark McGowan weighed in, stating: “the state government’s policy is that suppliers should be paid within 30 days. We believe this is a good template for the private sector.”
Meanwhile, federal Shadow Industry and Employment Minister, Brendan O’Connor labelled the discounting scheme unconscionable and harming the national economy.
“Making small businesses pay a fee to be paid on time is unconscionable. Small businesses require prompt payments to help manage cash flow and to grow, particularly when access to finance is tight. The economy does not benefit from this type of financialisation,” Mr O’Connor said.
Suppliers told The Australian that Taulia and Rio representatives had been “aggressively” peddling the scheme, which involved cutting invoices by about 2 per cent if a supplier wanted to be paid within 30 days
A Rio spokesman said less than 300 suppliers had signed up to the scheme since it launched early last year.
“Rio Tinto introduced a new online portal in 2019 to offer suppliers greater transparency on their payment status, including viewing invoices and tracking payments,” the spokesman said earlier this week.
“Roughly half of our 10,000 small to medium sized suppliers have chosen to use this voluntary system. The portal also provides an option for accelerated payments for those requiring shorter payment terms than the agreed 30 days. This feature is entirely optional and to date, less than 300 suppliers have chosen to use it.”
In the end, it appeared with so little uptake it simply wasn’t worth Rio continuing the scheme which would have delivered them a windfall of up to $200 million had all their Australian suppliers signed up.
