Tom Davenport, head of partnerships at MarketInvoice – the world’s largest peer-to-peer business lender for cash-flow finance – details research that shows supermarket payment terms have increased by five days to an average 42 days already in 2016; explaining why that's a real worry for suppliers
When it comes to working with UK supermarkets and other large retailers, long payment terms for suppliers are simply a fact of business life. Wholesalers and small- to medium-sized suppliers have to put up with a 40, 50, even 90-day wait to be paid for the goods they provide to some of the UK’s largest corporates. Why? Usually, it’s because they’re not in a position to argue otherwise. Despite past and upcoming intervention by the UK Government, the un-even dynamic in power between big retailers and small suppliers doesn’t look to be changing any time soon.
At MarketInvoice, we capture data from tens of thousands of invoices every year. This allows us to track the payment terms our small- to medium-sized customers agree with their debtors – many of whom are supermarkets. We found that the payment terms agreed by supermarkets with their wholesale suppliers had increased, on average, by 5 days in 2016. That’s an average wait of 42 days to be paid – as opposed to just 37 days in 2015. Our data also showed that of the wholesalers suppliers using MarketInvoice, nearly two thirds had already had their payment terms with supermarkets increased this year.
Such an increase so early in the year is a real worry for suppliers. A five-day gap can create a real cash flow headache for business owners, disrupting logistics, forecasting and even payroll. In January of this year, the UK grocery market watchdog found Tesco guilty of delaying payments to suppliers to boost its profits. By increasing the terms on which they pay their suppliers, supermarkets can boost their own balance sheets to improve their financial results. Unfortunately, it’s the small- to medium-sized wholesalers that take the hit.
This leaves suppliers and farmers in a difficult place. Any wholesalers that speak up and challenge their payment terms may simply be dropped by their supermarket overlords. If you can’t wait to be paid, they’ll find someone who will. More often than not, suppliers can’t afford to take that risk. Too much of their revenue relies on a single retailer, and to bite the hand that feeds isn’t a sensible option.
But for suppliers, the problem is two-fold. There’s a difference between long payment terms, and being paid late. In a report published by MarketInvoice in February, we found that 68.7% of invoices issued to supermarkets by UK small to medium enterprises (SMEs) were paid late in 2015. So not only are payment terms increasing, but there’s a high probability you’ll be paid even later.
Government has vowed to crack down on a ‘culture of late payment’ within the UK’s largest retailers in the upcoming Enterprise Bill. Minister for Small Business Anna Soubry has hailed the creation of a new role, the Small Business Commissioner, the primary function of whom is to tackle late payment. How this might manifest is unclear, but early suggestions include ‘name and shame’ tactics, which would require all retailers to make their payment terms and records public. This could help defend suppliers from both lengthening terms, and late payment.
For now, however, suppliers must bite the bullet. It’s a disappointing reality that payment terms of two months or more have become a common practice, and a radical overhaul of the business relationship between supplier and seller is required. Government must seek to even the playing field between small wholesalers and corporate giants, because in the industry’s current state, the former is very much at the mercy of the latter.