Credit control has never been more important!
This is the first of what will be regular Rollits blogs on what is happening in the food sector. The intention is to highlight issues of relevance to anyone in the industry. We will keep them reasonably short and hopefully interesting.
No-one will need telling that we are in very uncertain and turbulent times, both politically and economically. Putting the politics to one side, there is a cost of living crisis, soaring energy bills, rising inflation and higher interest rates. The inevitable consequence of all of this is that the public have less money to spend on non-essentials and, more worryingly, on important things like food and heating.
If the public spend less on groceries and go out less often, this has an obvious effect on a whole range of businesses in the food sector which need us to lay out money, particularly those in hospitality and leisure. Whereas food retailers can put prices up, and in times of inflation there is more scope for doing that whilst still remaining competitive, food manufacturers often find getting the necessary price increases hard to achieve.
Not only are retailers often slower to agree price increases with their suppliers than they are at putting up prices on the shelves, the stark reality is that retailers have suffered from staff shortages in their buying departments to answer requests for price rises from suppliers. The result is that food manufacturers get squeezed in the middle between sharply rising raw material, transport and labour costs and an inability to secure necessary price increases. Consequently there will be more business failures and we have already seen a number of those in the food industry. Vale of Mowbray, Tree of Life and Doisy & Dam are just three recent examples.
There has never been a more important time for companies to focus on credit control and to ensure that their customers do not exceed agreed payment terms. Insolvency practitioners are already very busy and sadly the demise of one business can often lead to the collapse of some of their suppliers.
I learnt a long time ago that businesses do not go bust because they are necessarily unprofitable. They fail because they run out of cash and, in the current climate, banks will be very reluctant to bail them out.
So our simple message is to stay on top of credit control; make sure that customers do not exceed their credit terms; and, if necessary, demand pro forma payment. It may not be popular with customers, but your business may depend upon it.