Catering equipment distributors have encountered some tricky periods over recent years, but it has been proven time and time again that with the right business model, a clear go-to-market strategy and the perfect price/product mix, success will usually follow.
One company that embodies this as much as any other is Lockhart Catering Equipment, which has gone from strength to strength since a change in management 2 years ago. Speak to suppliers and most will acknowledge that they have witnessed a positive change in the company’s fortunes and seen an improvement in the way it engages with the market.
Lockhart has flourished on multiple levels, most noticeably by working hard on growing its own-label product business while continuing to drive branded sales, increasing its online capabilities and investing in getting its sales force out into the market, with plenty to get customers excited about.
One of the knock-on effects of this huge growth is that Lockhart has had to review its payment terms with suppliers, which recently led to it notifying manufacturers that from now on it will pay invoices end of month plus 60 days.
Any supplier — whether its catering equipment or else — naturally wants to get paid as quickly as possible. So it’s understandable if some privately fear that by extending the payment cycle there could be some strain felt in the supply chain.
For instance, if an order is placed at the start of a calendar month it could effectively take almost 3 months before a supplier sees the money. When manufacturers and importers have their own factories or suppliers to pay on shorter terms, you can appreciate why the prospect of longer payment terms might be troubling.
There is no hard and fast rule on average payment cycles in the UK catering equipment sector. Each company does things their own way and it is a perfectly acceptable business practice for credit terms to be changed. Lockhart insists its move to end of month plus 60 days puts it in line with the industry, others suggest that distributors typically pay on average 2 weeks over monthly terms.
One supplier I spoke to recently, and who was among those to receive a letter from Lockhart, said it was an issue he needed to think carefully about. His company does a lot of business with Lockhart, which he doesn’t want to lose.
But at the same time, he was concerned by the potential cash flow issues that longer payment terms might create, particularly as there are also rebate agreements to factor in. “There is only so far we can be squeezed,” he warned.
The most telling indication of both Lockhart’s importance to suppliers and its growing status in the market is arguably the fact that it is the one imposing the longer payment cycle. In normal circumstances you would perhaps expect suppliers to be calling the shots when it comes to how many days customers have got to pay their bills, not the other way round.
In terms of the bigger picture, though, this episode certainly reinforces the challenges that any business faces when it expands incredibly fast. A rapid, upwards growth in sales inevitably puts added emphasis on good cash flow management — it simply comes with the territory.
In Lockhart’s case you also have to consider that it is dealing with a large number of national account customers, which themselves will likely be imposing preferred payment terms to generate the best possible outcome from the relationship.
In lengthening suppliers’ terms, it could be argued that Lockhart may also be reacting to the financial pressures that it is no doubt facing from its own customer base these days.
I know some suppliers feel strongly that distributors should not be passing the challenges they face in managing their own debtor books down the supply chain, but sometimes there might not be any choice.
Many suppliers have gained hugely from the investment that Lockhart has made in its business and theirs over the last 2 years. It is not unreasonable to expect those who benefit from rapidly rising sales to share the challenges of growth as well as the rewards.