The government claimed victory in its drive to name and shame big businesses that fail to commit to fair treatment of suppliers after Diageo, the world's largest drinks company, backed down on a plan to lengthen payment terms.
Diageo, which makes Johnnie Walker scotch and Guinness beer, said on Friday it would commit to a maximum 60 day term to pay small suppliers in the UK, instead of 90 days.
The commitment comes just weeks after the government strengthened the voluntary Prompt Payment Code, in an effort to crack down on extended payment terms that have provoked anguish from small suppliers who say they cannot afford them.
The measures were also backed by the opposition Labour party, which has described late payments as "a huge drag on the economy".
Philip King, chief executive of the Chartered Institute of Credit Management, which administers the code, said: "This is a victory for the code and a very good thing for challenging the whole late payment issue."
Diageo had risked being the first big business to be struck off from the code, under its new powers, he said.
In a recent letter to suppliers, Diageo had said that: "All our new tenders or contract agreements will request 90 day due payment terms as standard [instead of 60 days]."
The company said on Friday that this letter had "caused confusion".
David Cutter, Diageo's president of supply and procurement, said: "We fully recognise the importance of SMEs to the UK economy and to the sustainability of our own business and therefore we will commit to a maximum 60 day term for all SMEs in the UK."
The group could still move to 90 days terms on new contracts with large suppliers.
Matthew Hancock, business minister, said the government was intent on "stamping out poor payment practices".
"This is very welcome news from Diageo. It's hugely important that large firms pay their small suppliers promptly - as late payment can real havoc on a small firm's finances," he said.
Other food and drinks manufacturers, including Heinz and 2 Sisters Food Group, the UK's biggest Christmas pudding maker, have sought to extend payment terms.
The most controversial was Premier Foods, maker of Kipling cakes and Hovis bread, which had told suppliers last year that they could lose the chance of new contracts unless they made cash payments. It later backed down, saying it would revert "to a more conventional type of discount negotiation".
The relationship between Tesco and its suppliers is also under investigation and the UK's largest supermarket group,could face fines if found guilty of breaches under new powers.
Christine Tacon, the Groceries Code Adjudicator, launched the probe - its first - last month, after saying she had formed a "reasonable suspicion" that the UK's largest retailer had breached the supply code of practice.
The investigation is to "consider the existence and extent of practices which have resulted in delay in payments to suppliers".
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