05 January 2006 | Anusha Bradley

Halfords' suppliers must agree to later payment, price cuts and pay for advertising or lose business.

The firm is demanding its 570 suppliers follow the new rules by the end of this month.

The Office of Fair Trading may launch an investigation after the Forum of Private Business (FPB), which represents many of Halfords' suppliers, complained that the move was anti-competitive.

In a letter to suppliers, Paul McClenaghan, Halfords' director of trading, outlined new "trading requirements" in return for "continued investment".

He said the retailer's plans to invest in its "merchandise and advertising" could only be achieved with suppliers' support.

The letter added: "It is my intention to secure any outstanding 120-day payment term agreements prior to any buyers reviewing your products."

Suppliers must also agree to 5 per cent price cuts every year, and only those that help to pay for advertising will win business. "I request that support is committed prior to any purchasing agreements," he said.

A 2004 company report boasted that Halfords has a "strong bargaining position with suppliers" and shows it saved £25 million that year by lengthening supplier payments, which the FPB claimed went from 30 to 90 days.

It added that the "greed-driven" payment terms were "supremely arrogant" and would be "crippling" to smaller suppliers.

Darren Ford, senior procurement specialist at CIPS, said it was not uncommon for large firms to have longer payment terms for larger suppliers. He introduced a 120-day payment period while working as a senior buyer at GE.

But he added that it was not best practice to delay payments to smaller suppliers.

Clive Lewis, from the Better Payment Practice Group, said suppliers could legally charge interest on overdue debt after 30 days, but only a fifth did so.

A Halfords spokesman told SM the company did not comment on supplier terms.

SMjan2006