Supermarkets relax grip on small suppliers

Supermarkets are responding to the problems being faced by their small suppliers, despite new evidence that late payments in December 2009 were worse than in 2008 within the food retail sector overall.

According to the latest ‘Late Payment Index’ from global information services company Experian, late payments in December 2009 within the food retail sector were being made 25.73 days beyond the agreed terms - some 7.4% later than in December 2008, although marginally better (-0.6%) than in November 2009.
By contrast, ‘date beyond terms’ in December for food manufacturing were a little better at 20.62 days in December 2009 - a marked improvement over December 2008 (-14.3%), but still 0.3% above November 2009.
Despite these findings, most bosses of small businesses at last week’s Food Manufacture​ Business Leaders’ round table said the major multiples had generally paid them on time over the last year, with the exception of the Co-op Group, which had extended payment terms in some cases as part of negotiations following the acquisition of Somerfield.
Retailers play by the rules​
“Retailers understand the problems of small suppliers and played by the rules,” claimed Elizabeth Shaw md Malachy McReynolds at the event, held at Evershed’s London headquarters and sponsored by Eversheds, insurance broker Jardine Lloyd Thompson and TBM Consulting. McReynolds added that the supermarkets “did play by the book in terms of payment terms” last year. American Muffin Co joint md Zoeb Bhujwalla said: “I think, from the financial point of view, the retailers have been very good and they have paid us on time.”

Across all sectors, Experian reported that businesses paid their late bills on average of 20.88 days after agreed terms during December 2009 - an improvement of over two-and-a-half days from 23.54 days in December 2008.

Experian said that it was only from August 2009 that UK businesses began to respond to the problems being faced by their suppliers. The biggest improvement in payment performance came from the largest businesses (501+ employees) - a reduction of 36.10 days late in January 2009 to 28.97 days by December 2009. However, compared with 2008, payment performance in 2009 was marginally worse: from 21.51 days in 2008 to 22.79 days after agreed terms in 2009.
Keep a good credit score​
Joe Myers, head of commercial credit at Experian’s Business Information division, said: “The fact that the country’s biggest businesses reduced the time it takes to settle their bills by nearly 20% is a significant turnaround.
“Companies are more aware now than ever that their credit score is affected by their payment behaviour. While this enables them to negotiate improved terms as well as raise credit from alternative sources or suppliers, it also means that other businesses can make more informed decisions about working with them.”
While few manufacturers at the round table felt that the proposed supermarket ombudsman would make much practical difference to their dealings with overzealous supermarket buyers, Food and Drink Federation communications director Julian Hunt said: “We see the ombudsman more as a friendly community bobby - someone you can have a private word with.
“For competition reasons, we can’t have those kind of conversations with manufacturers as a trade association, and no-one would have a private chat with the Office of Fair Trading [which polices the grocery supply code of practice]. The devil will be in the detail, but it’s got to be a light-touch approach, low cost, and must ensure that the code of practice has teeth and is enforced.”
For more reports from the Business Leaders’ round table see for the February issue of Food Manufacture​.