Rio TintoCEO Sam Walsh has notified the company's suppliers around the world of a delay inpayments for their services, pushing payment terms to 90 days from 45, a blow tomany contractors already struggling with low prices and margin pressures, The Australian reported April 9.
"We are taking the necessary steps to ensure that our businesscan continue to be a strong and reliable partner to our suppliers, customers andstakeholders," Walsh said in a letter to suppliers, according to the report.
The decision came after the company increased the payment termto 45 days in June 2015 from 30 days, with the company attributing the move to challengingmarket conditions.
The move, which will be effective from March 31, is expectedto free up cash flow amid low commodity prices, but has angered suppliers that accusethe global mining giant of using market power to unilaterally change a primary contractualterm, which means their short-term cash-related obligations will suffer.
"Are the people behind this letter so institutionalizedin a large corporate entity that they failed to appreciate the very serious andpotentially dire consequences for many small businesses that not being paid for45 days by Rio, at short notice, could have?" one industry source told thenews outlet.
The change of contract terms will be applicable to all suppliershaving contracts of over A$3 million, while others below that threshold will bepaid within 60 days, according to The Australian.
The company has offered for suppliers to contact Rio Tinto toseek exemptions from this policy, and some cash-strapped local suppliers have soughthelp, according to the report.
A company spokesman said Rio Tinto is working with banks to useits "strong credit ratings to establish an optional supply chain financingprogram to support suppliers."
"This program is being piloted with several suppliers inour aluminum business, and we intend to make it more broadly available from mid-year2016," the company official added.
Rival BHP BillitonGroup in 2015 extended its payment terms from 30 days to 60 days, thereport noted.