For food and drinks manufacturers, there is nothing more exciting than landing your first big deal with one of the leading supermarkets. However, problems can quickly arise from securing large orders with big brands, especially when it comes to cashflow.
Big orders, low cashflow
As you begin to ramp up production and grow your business, you need a healthy cashflow. The problem is that your bigger clients probably have the longest payment terms. This means it becomes hard to fulfil your contractual obligations for the client, as you may not have the cashflow you need, in advance of clients paying their invoices.
The longer the payment terms, the more likely it is for businesses to run into cashflow difficulties. Without clients paying their invoices quickly, it can be hard to keep investing and growing the business. So, while food and drinks manufacturers are hoping the first supermarket order will lead on the next, without a cashflow plan, it can become almost impossible.
The supermarket problem
According to research by The Grocer, the big four supermarkets in the UK take 45 days, on average, to pay their invoices. When many other clients settle invoices with 30 days or less, 45 days can mean a significant impact on cashflow, especially when it comes to keeping your own suppliers happy and paid on time.
Waitrose typically offers 45-day terms for their suppliers. However, they have introduced quicker payment terms for their SME suppliers (where orders are less than £10,000 per annum). For applicable cases, suppliers are able to benefit from 7-day payment terms. However, for most suppliers, 45-day payment terms still stand.
Managing supermarkets’ long payment terms
At GapCap, we have been there to help many of our clients who are looking to improve their cashflow while managing long payment terms. We’ve helped businesses such as Arctic Power, a berry powder start-up who needed help in unlocking the money tied up in invoices and managing the Waitrose payment terms.
For Arctic Power and other businesses in a similar position, we offered our Selective Invoice Finance facility. This meant that they were able to release the cash tied up in outstanding invoices upon validation, without waiting for Waitrose’ long payment terms.
They were able to keep up their working capital and continue growing their business across multiple retailers.