By Peter Gosnell
SYDNEY (Reuters) - Rio Tinto (LON:RIO) , one of the world's biggest miners, has doubled its payment terms in a move that will force embattled suppliers to wait up to 90 days to be paid.
A spokesman for the mining giant confirmed the change on Saturday, saying it would sustain jobs and supplier relationships. Previously, the payment term was 45 days.
"We announced at the Rio Tinto results presentation in February that we would be embarking on a further round of measures to free up cash and reduce working capital," said the spokesman, Bruce Tobin.
"This initiative is designed to preserve and maintain jobs and suppliers in a tough global environment for commodities."
Tobin said the company was mindful of the impact moving to 90-day payments could have on suppliers already struggling as mining companies cut costs and that Rio Tinto was preparing to expand a financing programme it had been operating with suppliers to its aluminium division.
"We are working with banks to use our strong credit rating to establish an optional supply chain financing programme to support suppliers," he said.
"This programme is being piloted with several suppliers in our aluminium business, and we intend to make it more broadly available from mid-year 2016.
According to a report in The Weekend Australian on Saturday, Rio Tinto's new terms will apply to all contracts valued at $3 million or more. Suppliers whose contracts are valued at less than $3 million will receive payment in 60 days.
The Australian also reported that Rio Tinto chief executive Sam Wash had written to suppliers inviting any who believed they should be exempt from the new payment terms to contact the company.
Rio Tinto offers exemptions to suppliers that are registered charities, certain community and indigenous organisations and some government suppliers.
Rival mining giant BHP Billiton (LON:BLT) moved to 60-day supplier payment terms about 18 months ago. A spokeswoman said on Saturday the company retained significant flexibility in terms of arrangements with small business suppliers.
"BHP Billiton remains committed to the local communities in which we operate," BHP's Eleanor Colonico.
"We can grant exceptions to small enterprises in our local communities to operate on reduced payment terms," she said.
"BHP Billiton’s annual purchases exceed US$14 billion from more than 20,000 suppliers. We have been working to bring our standard payment terms into line with current market and industry practice and have moved to 60-day terms," she said.