Friday, March 29, 2024

Fonterra to pay bills sooner

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Fonterra has formalised shorter, more generous terms of payment to its smaller trade suppliers, reversing the trend to longer terms that was controversial two years ago.
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Chief financial officer Marc Rivers expects from August 1 83% of its New Zealand trade suppliers will be paid on the 20th of the month following invoice.

The change in payment policy applies especially to those Rivers calls smaller vendors billing Fonterra less than $300,000 a year.

There are 3900 of them among about 5000 NZ trade suppliers overall.

The larger suppliers will remain on the 60 days from the end of the month payment terms that caused controversy when enforced by Rivers’ predecessor, Lukas Paravicini.

At the time Paravicini said he was adopting global best practice and Rivers agreed the trend internationally remained towards longer terms.

So far 67% of NZ suppliers had arranged “personalised terms” of payment from Fonterra and with the new policy that number would rise to 83% on August 1, Rivers said.

Paravicini’s tougher line was introduced in 2015-16 when the co-operative pursued a Transformation policy to reduce costs and improve cashflow after two seasons of very low milk payouts to farmers.

Rivers said there will be a small cashflow impact from the new, easier terms but it will not affect farmers.

“The change from 67% to 83% is immaterial in Fonterra’s total spend.”

The change in policy came after receiving feedback from many smaller vendors who are the financial lifeblood of small towns and rural communities.

“We looked at the 67% already and said why don’t we formalise that with policy, to reflect the reality of the situation.”

Rivers said he was attracted to employment with Fonterra because he could regularly meet the co-operative’s owners and had begun doing so during the farmer roadshows and with a weekend spent on a dairy farm.

“By many measures Fonterra is a successful co-operative with creative mechanisms for its shareholders, who are all large business owners in their own right.

“It is already clear to me that Fonterra has world-class systems in finance, treasury, risk management and foreign exchange.

“The owners and the staff members have that co-operative mindset and very good attitudes towards each other.”

The ongoing improvement of processes and systems will aim to efficiently make thousands of financial transactions every month with harmonisation across the company and the many countries it operates in.

“That combination of feeding the world on behalf of the dairy farmers of New Zealand and Fonterra’s importance to the people of NZ is inspiring and motivating.”

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