Food for thought: Can Kroger reinvent payment terms along the produce part of its business?
To that end, grocery giant Kroger has been asking its supply chain — focused on produce — to commit to 90-day payment terms. That would tie into the PACA licenses granted by the USDA for trading in produce. The company is looking to standardize payment terms, according to a letter cited by andnowuknow.com, which will bring those terms to net 90 days. The new payment terms will be effective as of August 1. The company is seeking to smooth cash flow and working capital. There is also an early payment option with discounts on invoices.
Critics charge that accepting the new payment terms means that companies would give up protections under the Perishable Agricultural Commodities Act. As noted at thepacker.com, Western Growers has said that an extension beyond the 30 days mandated by that act would conflict with growers’ rights in place under PACA.
The site andknowuknow.com stated that growers and shippers, along with produce vendors, are in the midst of borrowing from banks to get paid within a 30-day timeframe, and under the new policy would have to increase borrowing.
Consultant to the industry Dick Spezzano told the site that “the banks will not like this at all and would probably increase their interest rates in response. With Kroger’s current pay practices, it buys, receives, ships to its stores and sells the produce four to five times before it pays for the first shipment. With this new pay practice, that would probably extend out to 12 to 15 times before they pay for the first shipment.”
Separately, and amid continued fallout in the U.K. construction industry, Network Rail has said it will change its contract payments — an event that is claimed to be the first sector within the construction arena to enforce 28-day payments. The ripple effect, according to infrastructure-intellgence.com, will be one that will benefit thousands of small and medium-sized enterprises in the U.K. as contract terms improve.
The fact remains that Carillion’s collapse earlier in 2018 is bringing changes to how and when industries get paid. Network Rail has already put in place a “fair payment charter” that seeks to improve cash flow. In an interview with the site, Stephen Blakey, who serves as commercial director of Network Rail, said “the Fair Payment Charter was about recognizing that cash flow is the ‘life blood’ for every supplier by committing to pay for goods and services in a fair, predictable and timely way. Harnessing the support we have already received from our major suppliers, we have simply taken the next natural step…”
In the U.K. at large, The Sun reports that government ministers have vowed a “major crackdown” on late payments tied to government projects. The crackdown, stated the paper, comes as the publication uncovered the fact that nine in 10 firms that supply infrastructure goods and services to the government are paid late.
FSB National Chairman Mike Cherry has said that revamping the way contracts are awarded would free up billions of pounds for the government itself as agencies have dealt with large firms that have inordinate pricing power. Smaller firms would stop getting locked out of the process, said The Sun.