Suppliers’ cashflow to be boosted by new Coles payment deal

In the wake of the bruising senate inquiry into the supermarkets and focus on their treatment of suppliers, Coles has inked a new payments deal with its food and grocery suppliers that should help with their cashflows and budgeting.

Coles has inked a new payments deal with suppliers. Picture: Getty Images

Coles has agreed to alter its payment terms with its thousands of food and grocery suppliers, a move that will deliver a major boost to supplier cash flows in the wake of the bruising senate inquiry that put a spotlight on their treatment by the big supermarkets.

In changes that swept into place from August, Coles extended the timing of deductions made to money owed to suppliers when a shipment sent to its distribution centre was missing items, or was underweight, also known as a “short delivery”.

Previously when a food and grocery supplier accidentally sent a short delivery to Coles, the supermarket would immediately deduct money from the next immediate payment owed to the supplier.

However, Coles decided to instead deduct the money from the invoice that directly related to the short delivery, meaning the supplier would not have the money taken off from its invoice for a few weeks or a month – this is a crucial win for suppliers as it means they have time to prepare for the lower payment and can better manage their future cash flows.

In a letter to suppliers from Coles chief commercial officer Anna Croft, the altered payment terms were explained as a positive change for suppliers that would result in accounts payable claims being deducted in line with payment terms of the related invoice.

A Coles spokesman told The Australian the changes to accounts payable was made after lengthy discussions with suppliers.

“We actively seek feedback from our suppliers and are committed to understanding and addressing any areas for improvement,” the spokesman said.

“After reviewing our accounts payable process, we are pleased to make these changes to our claims process to simplify deductions for our suppliers.

“We will continue to gather feedback through our regular supplier forums, surveys and from our suppliers directly to identify and address the areas that matter most to them.”

It marks a major win for the nation’s $163bn food and grocery manufacturing sector which has been struggling under rising input costs – from labour and energy to packaging and transport – and shrinking profitability.

The latest report from the Australian Food and Grocery Council showed that despite higher top line growth, operating profit fell by 7 per cent to $7.2bn for the sector due to persistent cost pressures from commodities, energy, and shipping rising faster than wholesale prices.

The improved payment terms from Coles – Woolworths already operates under the same model – comes after the nation’s two most powerful supermarket operators faced a bruising appearance before the senate inquiry into supermarkets earlier this year, where treatment of suppliers emerged as a major issue.

On Tuesday, Coles will report its full-year results, with market consensus tipping annual sales of $43.48bn, up from $40.48bn, and net profit to be slightly up on 2023, and about $1.079bn.

UBS analysts believe that while stock loss – from theft, waste and markdowns – was a significant headwind for Coles in the second half of fiscal 2023, the retailer’s waste and markdown was managed, and Coles had also embarked on significant efforts to manage theft better through self check-outs, electronic gates and staff, while product mix and promotional management were other results drivers for 2024.