Fonterra reintroduces faster payment terms for its smaller suppliers

Fonterra reintroduces faster payment terms for its smaller suppliers

By Guy Trafford

Back in March 2016, as a response to the poor prices being received internationally for milk products Fonterra brought in a number of austerity measures.

These ranged from cutting staff, reducing overhead costs to extending the time before contractors and those providing services to Fonterra received payment from the usual 30 day period to 90 days. At the time they copped a massive amount of bad press much from the affected  contractors but also from their own shareholders.

Many service providers said they quietly lifted their pricing to cover the additional costs and risks from having to carry the Fonterra bank balance. Therefore, the result has been a general lifting in costs in running farms and associated businesses including Fonterra. The criticism was not only in New Zealand with the Australian Government voicing its displeasure at such practices although on this side of the Tasman, the Government appeared “agnostic”. 

Finally Fonterra has seen sense, perhaps as a result of the criticism it has received more recently from Small Business Minister Stuart Nash, and for smaller service provider has reintroduced faster payment terms which will apply to suppliers that provide Fonterra with up to $300,000 of goods or services each year. Up to 4,000 businesses are said to be affected.

However, for the larger businesses the previous arrangements will still apply. Rob Spurway, Fonterra's chief operating officer of global business is reported to have said some medium-sized suppliers would stay on the older payment terms explaining it "had to draw the line somewhere", while most big suppliers are understood to have negotiated bespoke arrangements. The new arrangements are said to be introduced on August 1st this year.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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The damage is done, those extra "fonterra factor" loadings that were put on fonterra invoices will stay there even with the reduced payment time.

Ye, they've proven they can't be trusted. It'll take a long time for them to earn that trust back. Never turn your back on a bully!

Your an idiot. Fonterra could change their terms to paying quarterly overnight and still retain most of their suppliers. They have that much scale they can do what ever they want within the law. Atleast as a supplier you know you will get paid.

Then most of their suppliers should take a look at their business model. Over reliance on one client just makes you vulnerable to them jerking you around. As far as idiocy is concerned, it is my my experience that those who resort to denigrating the person, rather than providing an argument are little people trying to be big, bullies and cowards. Take a look in a mirror!

You take a look in the mirror. You are degrading a corporation and providing no arguement. Are you little trying to be big, a bully and a coward or do you get special exemption from your own beliefs?

I am not denigrating a person, I am decrying appalling business practices that amount to nothing more than bullying tactics against small, vulnerable suppliers. In pulling this move, they have proven that they will use their economic clout to push around the small guy when it suits them. This lacks integrity. In business i treat my clients as I would expect to be treated, big or small. Why are you so high and mighty? Fonterra board member?

Well said. Using small business to aid their cashflow is reprehensible. Maybe fonterra shareholders need to stump up more cash or the top brass needs a solid haircut.

One only has to look at their latest set of half year figure to see the negative impact. Costs are up and profit is way down. The impact on integrity was even worse.

Caught up with a friend on the weekend, he was telling me the Yashili plant in Pokeno are nearly done refining the blend of imported milk powder from Europe and local milk before increasing output of their infant milk powder product later this year, he wasn't talking about a small quantity either.

Makes you wonder how they'll market it

Product of New Zealand. Made from local and imported goods. But bet the marketing hype is around 'Made in NZ'.