October 21, 2008
U.K. Supermarkets Asked to Expedite Payments to Small Suppliers
By Bernice Hurst, Managing Partner, Fine Food Network
As if anyone in the retail industry didn’t know it, the current economic situation is hammering home an important message. Neither retailers nor suppliers can survive without credit. But when the retailers are big (read supermarkets) and the suppliers are small (read farmers), even the slightest alteration to agreed payment terms can be fatal.
According to the UK’s Guardian newspaper, Hilary Benn, the environment secretary, “met leaders of the main food chains to emphasize that small businesses were far more dependent on the timing of payments than larger companies.”
“A single late payment can be the difference between survival and collapse,” Mr. Benn reportedly said. He described small businesses and farmers as “the lifeblood of the food industry” and said they should be helped through “turbulent times.”
While the British government realizes they can’t get directly involved in commercial arrangements, they are expressing concern about the ability of small companies to survive if they don’t receive their payments promptly.
Mr. Benn’s suggestions received a positive response from both the Federation of Small Businesses (FSB) and the National Farmers’ Union (NFU). A spokesman from the former hoped that large companies would pay well before time. The NFU commented that anything that could be done to encourage early payment would be helpful. Lee Woodger, head of NFU’s food chain unit, took the advice a step further, saying, “It would also be welcome if ministers emphasized the importance of sourcing food from Britain rather than abroad.”
Discussion questions: Do you think supermarkets should be speeding up payments to smaller suppliers given the financial crisis? Why or why not?
[Author’s commentary] Some supermarkets’ relative munificence (read big profits) might be reaped over a longer period if their suppliers were paid more promptly but they might also benefit in the long run by helping the smaller companies to keep trading. Those same small suppliers might then be in a position to continue supplying their customers rather than finding that
to a significant degree their own profits were being used to subsidize bigger companies with greater room to maneuver.
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In the current economic climate, it just makes sense to speed up payments to small suppliers. Yes, companies like to hang on to their cash as long as possible before paying bills, but these are not ordinary times. A small step like this can make a big difference to some suppliers.
With the growth and success of specialty markets that sell gourmet, niche, organic, or other low yield product categories, I believe it is essential that those markets make every attempt to satisfy the agreed-upon payment terms of the smaller supplier. The brand essence of the market depends on the health and stability of those smaller suppliers, so I think helping them helps to sustain the health of the market . . . without question.
Seems to me suppliers who offer a discount if paid with in 10 days should get a faster response. Such as a 1 or 2% discount. Then charge significant interest penalty and late fees if not paid within 30 days. I know its tough when these big companies follow the golden rule–he who has the gold makes the rule.
I’ve always wondered about the stick and carrot thing in this context. However can a small supplier telling a big customer that they will offer a discount for prompt payment and/or penalty for delayed payment possibly enforce such a rule? Or stop said big customer collapsing with laughter? Or cutting short the contract? David’s golden rule is pretty appropriate in today’s circumstances even more than ever.
Cash flow problems kill small businesses and as once a small supplier in the UK, I understand the pain of dealing with troublesome paymasters.
And yes big companies should treat smaller suppliers better as it is obvious that small companies cannot easily float cash.
UK business is run on individual contracts but, payment terms tend to be standard and imposed in either contract or practice by the bigger party.
For readers not from California, please consider the following: Four members of the family that is the largest packer and shipper of cherries, apples, and walnuts in the state were recently found guilty of skimming millions from company revenues. The hitch, however, is that if the guilty parties were sentenced to serve prison time simultaneously the business would fail and California’s agribusiness would be severely affected. So, the court gave them staggered sentences. This allows at least one, and usually two, of the convicted family members to continue to operate the business while the others serve their prison time. Then they’ll exchange incarceration mattresses for Tempurpedics and vice versa.
Strange developments reflecting strange times. The courts getting involved in commerce.
While this action involved a large supplier in a specific category being favored by law enforcement in the interests of bidness, their products represent a minuscule share of sales for supermarket retailers. Would this have happened a decade ago? Probably not. But, it helps define the skein of commercial interrelationships and fiscal interdependencies necessary to sustain the businesses upon which we–and retailers–have come to rely (think “banking bailout” on a much smaller scale). For most of us, it’s about putting good food on the table economically.
On the opposite side of this coin is the recent demise of the largest supplier of fresh produce to restaurants in the Sacramento area. They couldn’t increase prices fast enough to keep pace with transportation costs, and the restaurants they served wouldn’t agree to pay more. Ever wonder why you can get a great beefsteak tomato salad in a restaurant but can’t find them ‘maters in supermarkets, farmer’s markets, or your own backyard? They have their sources, but kiss ’em goodbye if you’re dining in my or contiguous zip codes.
Bottom line, retailers must support their smallest suppliers before their largest suppliers. It’s products from the smallest suppliers that lend personality to supermarkets, and it’s those same suppliers who can least afford slow payment.
There is a difference in the laws and culture between the United States and United Kingdom. Every supplier has stated terms. Yes, some retailers try to stretch payments a day or so. They do this until the supplier calls them on it. The most common terms are 2% 10 net 30 days and net 10 days.
Most retailers don’t try to slow payments to small suppliers as it does not represent that much money to them. The greatest money is made by delaying payment to the largest suppliers. There isn’t really any need to make changes here. Europe is another story. Payment in 30 days would be welcome by any supplier.
While this sounds like a nice idea, I imagine the reality will play out a bit differently. Hard to imagine big chains restructuring their accounting and payment systems in order to expedite payments to small suppliers. And, who defines small? But, at least the small business associations can say they tried.
I don’t know how the situation is in the UK, but I know the practices of various large retailers in the U.S. are quite despicable. More than a couple of U.S. retailers specifically extend payments to small companies because they can. They don’t do this to the large marketers, because the large CPGs have resources to combat it.
But on more than one occasion, I have seen [retailers] cripple small companies to the point of destruction. I recommend to start-ups that when they are ready to go to retail that they go to the drug wholesalers first. On the supermarket side, I have not seen the supermarket operators extending terms excessively. These entities respect the agreements of their purchase orders.
It is absolutely unethical for retailers to hold payments to small suppliers just because they can. It suggests that these retailers are looking for other ways to make money than being excellent retail operators.
As a small businessman and company myself, I experience first hand the payment situation that many small businesses are experiencing. My recommendation is to MEET the agreed upon payment terms. In my opinion and experience, late payments are a big problem for small companies as the bigger suppliers are needed more in most cases and have the clout to impose penalties. Meeting terms and not taking advantage of small companies would solve most of the problem.
Treat your suppliers badly? Folks have memories. Who gets shipped first, the one that pays or the one that doesn’t?
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In the current economic climate, it just makes sense to speed up payments to small suppliers. Yes, companies like to hang on to their cash as long as possible before paying bills, but these are not ordinary times. A small step like this can make a big difference to some suppliers.
With the growth and success of specialty markets that sell gourmet, niche, organic, or other low yield product categories, I believe it is essential that those markets make every attempt to satisfy the agreed-upon payment terms of the smaller supplier. The brand essence of the market depends on the health and stability of those smaller suppliers, so I think helping them helps to sustain the health of the market . . . without question.
Seems to me suppliers who offer a discount if paid with in 10 days should get a faster response. Such as a 1 or 2% discount. Then charge significant interest penalty and late fees if not paid within 30 days. I know its tough when these big companies follow the golden rule–he who has the gold makes the rule.
I’ve always wondered about the stick and carrot thing in this context. However can a small supplier telling a big customer that they will offer a discount for prompt payment and/or penalty for delayed payment possibly enforce such a rule? Or stop said big customer collapsing with laughter? Or cutting short the contract? David’s golden rule is pretty appropriate in today’s circumstances even more than ever.
Cash flow problems kill small businesses and as once a small supplier in the UK, I understand the pain of dealing with troublesome paymasters.
And yes big companies should treat smaller suppliers better as it is obvious that small companies cannot easily float cash.
UK business is run on individual contracts but, payment terms tend to be standard and imposed in either contract or practice by the bigger party.
For readers not from California, please consider the following: Four members of the family that is the largest packer and shipper of cherries, apples, and walnuts in the state were recently found guilty of skimming millions from company revenues. The hitch, however, is that if the guilty parties were sentenced to serve prison time simultaneously the business would fail and California’s agribusiness would be severely affected. So, the court gave them staggered sentences. This allows at least one, and usually two, of the convicted family members to continue to operate the business while the others serve their prison time. Then they’ll exchange incarceration mattresses for Tempurpedics and vice versa.
Strange developments reflecting strange times. The courts getting involved in commerce.
While this action involved a large supplier in a specific category being favored by law enforcement in the interests of bidness, their products represent a minuscule share of sales for supermarket retailers. Would this have happened a decade ago? Probably not. But, it helps define the skein of commercial interrelationships and fiscal interdependencies necessary to sustain the businesses upon which we–and retailers–have come to rely (think “banking bailout” on a much smaller scale). For most of us, it’s about putting good food on the table economically.
On the opposite side of this coin is the recent demise of the largest supplier of fresh produce to restaurants in the Sacramento area. They couldn’t increase prices fast enough to keep pace with transportation costs, and the restaurants they served wouldn’t agree to pay more. Ever wonder why you can get a great beefsteak tomato salad in a restaurant but can’t find them ‘maters in supermarkets, farmer’s markets, or your own backyard? They have their sources, but kiss ’em goodbye if you’re dining in my or contiguous zip codes.
Bottom line, retailers must support their smallest suppliers before their largest suppliers. It’s products from the smallest suppliers that lend personality to supermarkets, and it’s those same suppliers who can least afford slow payment.
There is a difference in the laws and culture between the United States and United Kingdom. Every supplier has stated terms. Yes, some retailers try to stretch payments a day or so. They do this until the supplier calls them on it. The most common terms are 2% 10 net 30 days and net 10 days.
Most retailers don’t try to slow payments to small suppliers as it does not represent that much money to them. The greatest money is made by delaying payment to the largest suppliers. There isn’t really any need to make changes here. Europe is another story. Payment in 30 days would be welcome by any supplier.
While this sounds like a nice idea, I imagine the reality will play out a bit differently. Hard to imagine big chains restructuring their accounting and payment systems in order to expedite payments to small suppliers. And, who defines small? But, at least the small business associations can say they tried.
I don’t know how the situation is in the UK, but I know the practices of various large retailers in the U.S. are quite despicable. More than a couple of U.S. retailers specifically extend payments to small companies because they can. They don’t do this to the large marketers, because the large CPGs have resources to combat it.
But on more than one occasion, I have seen [retailers] cripple small companies to the point of destruction. I recommend to start-ups that when they are ready to go to retail that they go to the drug wholesalers first. On the supermarket side, I have not seen the supermarket operators extending terms excessively. These entities respect the agreements of their purchase orders.
It is absolutely unethical for retailers to hold payments to small suppliers just because they can. It suggests that these retailers are looking for other ways to make money than being excellent retail operators.
As a small businessman and company myself, I experience first hand the payment situation that many small businesses are experiencing. My recommendation is to MEET the agreed upon payment terms. In my opinion and experience, late payments are a big problem for small companies as the bigger suppliers are needed more in most cases and have the clout to impose penalties. Meeting terms and not taking advantage of small companies would solve most of the problem.
Treat your suppliers badly? Folks have memories. Who gets shipped first, the one that pays or the one that doesn’t?