Rio about-face on payment term

Mining giant Rio Tinto has backed down from its decision to double the payment period on its supply contracts after widespread criticism from politicians and an outcry from suppliers.

The reversal comes just days after the decision to extend the payment period, as reported by Business News last Friday, and will force the world's second largest iron ore miner to look at other options in its hunt to reduce costs.

"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," a Rio Tinto spokesperson said.

Rio had told its suppliers the company would take 90 days to make payments instead of 45 days, in an effort to free-up cash flow and reduce working capital amid a prolonged commodities downturn.

The decision was to apply to all supply contracts greater than $US3 million ($A4 million).

BHP Billiton has a 60-day payment policy, while Fortescue Metals Group pays its bills within 30 days of them being processed.

Rio's move evoked a backlash from already struggling suppliers, who have faced dwindling revenue as miners continue to slash expenditure in the face of falling prices.

Treasurer Mike Nahan had described Rio's decision as outrageous, while Prime Minister Malcolm Turnbull and Resources Minister Josh Frydenberg promised to raise the issue with the company directly.

"I suspect they would have got tapped on the shoulder," Fat Prophets analyst David Lennox said.

"Given what's happening in terms of the wider debate on taxes, no big company would want to be seen doing anything untoward in relation to their customers, suppliers or taxpayers."

Rio said it had taken a number of proactive measures to strengthen the company in light of challenging market conditions, including a wages freeze for staff.

It added that the decision to ask suppliers to share some of the burden had not been taken lightly, and it had endeavoured to reduce the impact where it could.

Rio said future arrangements will be negotiated with suppliers.

"To ensure full transparency, 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," it said in a statement. 

The mining giant made a loss of $US866 million in 2015, and in February announced it would slash returns to shareholders, in addition to from further cuts in capital expenditure and operating costs.

Rio Tinto shares closed 2.5 per cent higher to $48.60 each.