Of the many things being examined by Groceries Code Adjudicator Christine Tacon, the issue of payment terms to food and drink producers from supermarkets is one which many in the industry will be keeping a close eye on.
Unfortunately, the wheels of Government watchdogs turn slowly, and, with a huge workload, it may be some time before we see a report on the subject, let alone an action plan that will have enough teeth to be effective. So what can producers do in the meantime?
The old cliché that ‘turnover is vanity, profit is sanity, cash is reality’ is nowhere more relevant than in the food and drink industry. For producers working on very tight margins, cashflow is often the number one issue; waiting months to be paid for the produce you have delivered to retailers can be the killer blow for some businesses.
There is no golden bullet to tackle this, unless your business is endowed with significant cash reserves – and that is not a common situation in this sector. So here are five tips which might just make the difference:1. An obvious one to start with: ensure that clear payment terms are written into your initial contract.
This at least gives you the ability to chase payment when it is overdue. You might be surprised how many producers neglect this simple step.2. Make sure you invoice promptly, ideally on delivery.
If you wait until the end of the month, you are simply giving the retailer free credit. They will start counting the days from when they receive the invoice, not when they receive the goods. Also make sure you keep on top of what is owed to you, so that you can start chasing payment the moment it becomes due.3. Make sure you have some headroom in your financial plans.
You probably need to accept that you are going to be giving retailers credit and waiting for payment, so allow for this in your planning. You might want to factor in invoice financing into your projections, to give an element of certainty.4. Build a personal relationship with your buyer.
If they like you as a person as well as valuing you as a supplier, you are in a stronger position. This, incidentally, is one of the many reasons to build a strong brand for your produce – if customers clamour for your product, retailers are far less likely to risk their supply chain through late payment.5. Ensure you fill your side of the contract to the letter
, so that you don’t give the retailer any reason to question invoices and delay payment.
If you have further questions on this topic please do contact me.