Tesco has been warned against returning to the “bad old days” as it dropped out of a code promoting fair treatment of smaller suppliers.
The move came just before the Prompt Payment Code was reformed to speed up payments to businesses with under 50 employees.
The Big 4 grocer was told it would need to pay 95 per cent of bills from suppliers within 30 days, down from the previous limit of 60 days.
Suppliers can charge interest on late invoices.
According to The Times, Tesco left the code on June 22, days before the new regime began in July.
Britain’s biggest supermarket claimed the rules would have been impractical, as it categorises suppliers on the volume of business it does with them, rather than their staff numbers.
“Tesco’s shock decision is bad news for good corporate governance and for leadership,” Federation of Small Businesses external affairs chief Craig Beaumont said.
The Groceries Code Adjudicator (GAC) should “keep a close eye on Tesco’s payment practices with all small businesses”, he continued.
“We can’t go back to the bad old days.”
Tesco has tried to improve its treatment of its supply chain after a 2016 investigation found it had seriously breached industry rules.
The supermarket “prioritised its own finances over treating suppliers fairly,” the GAC ruled.
Over the Covid-19 pandemic, Tesco extended special payment terms for its smallest suppliers, meaning their bills could be settled as soon as invoices cleared.
It is expected to make this change permanent, affecting 1400 of its 2500 UK-based suppliers.
An official filing shows the average time Tesco takes to pay suppliers is 41 days and its longest standard payment term is 45 days.
A Tesco spokesman said: “We’re committed to supporting our smallest suppliers.
“We’ve recently made permanent the improved payment terms we introduced to help them through the pandemic.
“Our decision to leave the code is due solely to its new definition of a ‘small’ business and none of our small suppliers will be worse off as a result.”
He added that nine in 10 suppliers “rate Tesco highly for paying promptly”.
However, Beaumont claimed that Tesco “has had months to improve its internal processes and report on payments to businesses with fewer than 50 employees.”
“It’s not too late for it to do the work and show some leadership.”