December 4, 2015 12:00pm by David Farrar

Shame Fonterra

Business owners have been left feeling bullied by Fonterra over changes they say mean cutting their prices and waiting longer to get paid.

A letter from Fonterra’s chief financial officer Lukas Paravicini was sent to contractors and suppliers around the country in October detailing the changes that were being made.

The vendors were asked to find efficiencies across their operations to reduce their prices by 10 percent and submit a proposal on how they would do so.

And, rather than sending payments on the 20th of the month following the invoice date, some contractors were told payments would now be sent 61 days after the end of the month of the invoice.

A number of contractors spoken to were infuriated by the changes, but too afraid to speak up and risk losing business.

Wanganui National Party MP Chester Borrows said he had been contacted by some contractors from the Taranaki region, but many were uneasy about commenting on the situation.

“I think it’s classic bully-boy tactics from a big company who is using the leverage of fear against its contractors to drive down the price and to obtain free credit,” Borrows said.

I haven’t got a problem with Fonterra asking suppliers to reduce prices. But personally the best way to reduce prices is competitive tenders, not asking current suppliers to make an arbitrary price reduction.

But having NZ’s largest company tell suppliers we won’t pay you for two to three months after we receive your supplies is shameful. Paying on the 20th after month end is standard business practice.

I’ve worked for a small business, and managing cashflow is incredibly challenging. You can be profitable on paper but struggle to pay bills. And if you pay IRD late you get stung with big penalties.

Fonterra’s unilateral change to credit terms, could well send some small businesses under. Those businesses will have had to pay their staff and suppliers, but could have to wait three months to be paid in turn.

Fonterra as a company can impose whatever terms it wants – it is a free market. But companies also have reputations and this move damages their reputation and makes them look indeed like a bully using small businesses as a source of free credit.