Rio Tinto abandons plan to keep suppliers waiting

Australian Dollars

UK-Australian mining giant Rio Tinto has abandoned a plan to double the time its suppliers must wait for payment, after protests from mining services firms and a request to reconsider from Australia’s resources minister.

The miner recently wrote to customers this month, notifying them it intended to extend its payment terms so that suppliers would have to wait 90 days for payment instead of 45 days. Rio had already extended payment terms from 30 days to the current 45 days in 2015.

The proposed new terms would have applied to supply contracts worth US$3m and above. For suppliers with contracts below that threshold, payment terms were to be increased to a more modest 60 days, from 45 days.

Suppliers lobbied Australia’s prime minister Malcolm Turnbull directly and other government figures, to push Rio to drop the changes. Resources minister Josh Frydenberg said he asked Rio to “re-examine” its decision.

“We recently announced changes to the terms of some of our supplier segments to help maintain jobs in a difficult global environment for commodities,” a Rio spokesman told Reuters.

“We value our partnerships with our suppliers and their feedback, so we have taken the decision to maintain our payment terms for those suppliers with contracts in place, as they were at March 30.

“Future arrangements with our suppliers will be negotiated as part of any discussions about new contracts, to maintain the competitiveness of our business and our future ability to develop our assets.

The group added that the “decision to ask our suppliers to share some of the burden has not been taken lightly and we have endeavoured to reduce the impact where we can”.

Rival mining giant BHP Billiton moved to 60-day supplier payment terms from 30 days on US$14bn of supply contracts about 18 months ago, after its review found its existing deal was “significantly shorter than the standard terms in the marketplace”. Reports suggest that the mining industry’s average for payment terms on supply contracts is 60 to 75 days.

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