The full extent of the task facing Tesco boss Dave Lewis as he battles to repair the reputation of Britain’s biggest retailer has been underlined by a damning report into its business practices.

The report, from the supermarket ombudsman, details a deliberate policy of delayed payments and under-payments to suppliers, who in some cases were forced to wait more than two years for money due.

Some suppliers were given random demands for cash that was not due; spurious and duplicate invoices were issued; and the group failed to correct its erroneous records.

There have long been reports of suppliers being bullied and ill-treated by Tesco but the findings of the report from the government-appointed groceries code adjudicator, Christine Tacon, are shocking.

One can only imagine the despair of smaller companies as they tried to balance their own books and pay staff while dealing with the Kafkaesque nightmare of attempting to extract cash from Britain’s most powerful retailer.

For a significant proportion of the suppliers affected, Tesco was their largest customer, leaving them dependent on the group not only in respect of their current financial position but also their future. This, said Tacon, placed Tesco in “a powerful negotiating position”.

Upper hand

And Tesco appears to have made the most of its upper hand. In one instance, says Tacon, a supplier was “given the impression by Tesco that its future business with Tesco was at risk if it pursued the debt”.

Other suppliers feared they would breach banking covenants or be forced to take out bridging loans if they could not get their cash.

Then there was the time that dealing with Tesco took up, with one supplier sending 45 emails to the supermarket group to chase a relatively modest payment of £5,000.

For Tesco the motive was to shore up its finances and meet internal forecasts as it battled against falling sales and growing customer dissatisfaction with its consumer offer.

The abuses appeared to be “more prevalent” towards the end of trading periods as Tesco prepared to update the City on its performance.

Tacon launched her investigation a year ago after Tesco shocked the market by revealing a £250 million black hole in its accounts (later revised up to £326 million) because of over-stated profit numbers, a scandal uncovered by new chief executive Lewis in his first few weeks in the job.

Tesco has now been ordered to make “significant changes” to the way it treats its suppliers, including no more unilateral deductions from money owed for goods supplied and a 30-day period for suppliers to challenge any proposed cut.

Pricing errors must also be rectified within seven days of being pointed out by a supplier. Invoices must be made clearer, and finance teams and buyers at the supermarket group will have to be given training on the report’s findings.

Four weeks

Tesco has been given four weeks in which to say how it will implement the adjudicator’s recommendations.

Despite the catalogue of appalling behaviour detailed , Tesco will not be subject to any financial penalty from the adjudicator. So, a severe slap on the wrist and more bad publicity is the end result of the year-long investigation.

But two more inquiries are still being conducted into the group’s accounting irregularities, one by the serious fraud office (SFO) and another by the accountancy watchdog, the Financial Reporting Council.

Tesco may not be so lucky next time. One analyst warned that the SFO could use its powers to fine Tesco 1 per cent of its UK grocery sales, which would amount to £350 million. There could also be penalties for directors, and the group could be forced to repay millions to suppliers.

Fiona Walsh is business editor of theguardian.com