Supermarkets are not immune from retail closure contagion

The face of British retail has changed dramatically throughout lockdown. Peter Jones has fallen into administration, John Lewis has closed eight department stores and many SMEs have ceased trading entirely.

Although supermarkets have not faced the same struggles as other retailers over the pandemic, their supply chains are not immune from retail closure contagion. The industry-wide practice of long payment terms for suppliers means that many suppliers of the companies that go into bankruptcy will be left significantly out of pocket.

Before the pandemic, late payments to suppliers amounted to over £23bn, according to Pay.UK research. Since the pandemic, buyers across many sectors have pushed for longer payment terms, which severely squeezes suppliers’ cashflow. SMEs are the worst hit.

The Federation of Small Businesses found that 62% of small businesses had experienced either an increase in late payments and/or had payments frozen completely as a result of Covid-19. As unsecured creditors, they have very little chance of recovering their invoice values.

This puts the whole supply chain at risk of its own financial difficulties, which will, in turn, have severe impacts on the other buyers that rely on these suppliers. This creates a ‘contagious’ effect of financial distress and potential closures, which will yet further exacerbate the troubles faced by the retail industry.

Large corporates can adopt instant invoice payment policies in a way that would also be sustainable long-term for their own cashflow. The technology and processes exist to enable suppliers to access cash immediately without buyers having to speed up their own payment processes.

According to Harvard Business Review, securing supply chains without losing their competitive edge will be a high priority for companies in the future. Paying suppliers faster demonstrates a real commitment to sustainability and strengthens supply chains at very little cost – a massive bonus for all supermarkets.

To create sustainable supply chains, we need to take on the inertia that suppliers face when trying to get invoices paid on time. This is sometimes the difference between small suppliers being able to keep the lights on, or not.

Every small business deserves the right to day-one payment. If supermarkets work in harmony to pay their suppliers faster, Britain’s food industry will thrive. Our food industry is the backbone of the UK, all the way from independent farmers to our most well-known supermarkets. Now is the time to invest in the industry’s future and provide security to those who work in it.