MONEY SPECIAL: Dealers ponder end user payment terms

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Distributors are often invoicing new clients for 50% project value deposits.

Distributors could be forgiven for thinking it is a bit of a fraught time to be in business, with some fellow firms’ recent high profile demise. Some may be tightening up their own invoicing processes to make sure they don’t become victims of massive project losses, so Catering Insight talked to a selection of dealers to see where they currently stand.

Many distributors stick to a 50% deposit policy for each scheme, including Ruislip-based WilcoxBurchmore. MD Cathy Wilcox revealed that a further 40% is usually asked for before the kitchen design house starts onsite, and the remaining 10% on completion. But she did emphasise the company’s flexibility, particularly with larger projects, where staged payments are arranged throughout the duration.

“For ‘one off’ clients we ask for full payment on receipt of a pro-forma,” she said. “Otherwise we discuss our terms for each job and very rarely give extended credit – an exception would be a school that we’ve got history with and which needs to wait until new budget kicks in.”

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Fulcrum Commercial Kitchens is another 50% firm for independent or new end users, then asking for 30% prior to delivery and 20% 14 days after satisfactory completion. According to director David Burnett: “In the past we have been lucky enough to avoid bad-debts by pre-judging clients’ circumstances. One-offs would always be charged pro-forma.

“Once a customer has a trading history with us we are generally happy to open a 30-day credit account but this is credit-controlled robustly. When we enter into sub-contract with a main contractor, deposits necessarily have to be waived – occasionally it will be accepted but the amount of effort and delay in attempting to secure this normally makes the process unviable.

“As we’ve increased turnover and gained new end users, implementing a stricter control has been necessary. The profit on the job is still effectively at risk but at least our costs are, in the main, covered. Even our largest and most well established customers are approached for deposits on very large orders or where we are having to pay upfront for specialist equipment specified by others. Generally they are understanding and comply.”

KCM Catering Equipment also adheres to a 50% deposit rule, with the balance on a 30 day account invoiced at the end of the project. However, MD Alistair White revealed: “We used to ask for 50% upfront on all schemes; this has been changed to doing more of an investigation of the client prior to deciding terms and whether we need to ask for more upfront.

“We use Creditsafe to investigate the client prior to deciding whether standard or amended terms would apply. We do sometimes offer 25%/25%/50% terms, and have recently done a scheme with four 25% payments, but in general 25% would be the lowest upfront payment and would only happen on considered projects or where the start date is such a long way off that asking for 50% would be too much.”

Elsewhere, another major distributor’s new clients would also be required to pay 50% on order, 40% before delivery and balance on completion, but for existing end users with a proven credit rating this is relaxed to 25% deposit with order, 50% before delivery and balance on completion. While for blue chip existing clients, the policy is 30 days from invoicing.

Over the last 2-3 years this dealer has changed the required percentages, with a greater emphasis on deposits with an order, and balancing payments reduced on completion, to mitigate the risk and exposure to the business.

iFour director Lee Swiffen reported tightening payment terms to reduce financial exposure.

At iFour Hospitality Design, it works on strict payment terms of 50% on order, 45% 7 days before install and 5% within 30 days. Director Lee Swiffen added: “The 5% often ends up being higher, with clients requesting additional works or equipment towards the end of a project. Even our very best customers stick to these terms.

“For smaller projects below £10,000 or equipment supply we may offer slightly different terms depending on the amount and the perceived risk. However unless the order is a small number of items supply/delivery only, we would always look for a 50% deposit on order.”

Swiffen revealed: “We previously allowed for 10% within 30 days. However with the additional costs on projects we found we were leaving ourselves a little too exposed.

“I am sure some of our clients would prefer extended payment terms, but we just can’t risk it for anyone.”

Over at Bournville Catering Equipment, it also offers 50% upfront terms for new clients. However, existing end users such as schools, colleges and hospitals can take advantage 100% credit, but with 28 days payment terms, as MD John McEvoy said: “They generally take longer to pay.

“If in doubt, we require money before we deliver, and we always do credit checks on new clients and slow payers. If a customer is at all risky, we ask for money upfront or we walk away.”

Blackpool-based Caterware’s payment terms depend on the client and the distributor’s previous experiences with the business. MD Mark Drazen revealed: “As a company, we are not short of cash, so our concern is more from the credit risk side. Our terms and arrangements are more in consideration of that than cash flow.”

For instance, new clients would typically be 40% deposit, 40% paid just prior to delivery and the remaining 20% within 30 days, but this is negotiable. However, long term clients would be invoiced on a 30 day payment basis.

Drazen further explained: “But if projects are placed with the equipment supply 12/18 months in advance, we can’t wait for equipment to go in at the end before we receive any funds whatsoever, so would normally ask for a 10% deposit to cover our project management expenses until we can invoice or deliver equipment, when it finally goes in at the end of the project.”

Likewise, for projects 2-3 years ahead, Caterware will charge a ‘consultancy fee’ payable once it has completed the design and equipment specifications. This can be up to 10% of project value, but is refundable once a final order is placed.

Drazen said: “We set all of these parameters back in the 2008-2012 ‘Dark Age’ when we were very concerned about the financial credibility of some of our established customer base, like everyone else. Since these fears reduced from 2012 onwards, we left our terms as they were. They were generally accepted and indeed sometimes expected by our end user customers. Everyone was asking them for similar and they had got used to such terms, so why change?”

Cambridgeshire’s B.I. Catering Equipment Services has a slightly different approach, with MD Andrew Jones analysing: “Sometimes clients can ask for payment terms on as little as £4,000 over 24 and 36 months, and this is due to manufacturers offering payment terms over 24 months. But in the main, for projects where we supply and install, we ask for a 30% down payment, 30% upon delivery of goods and the final 40% when all is installed, with 30 day payment terms allowed.”

However, he warned: “We can all have a payment policy as long as you like, but frankly it’s worthless, as clients will decide how and when you get paid.

“A few years ago the government tried to assist by allowing you to add a percentage to late payers, be it customers or government outlets. This is worthless – as an example, one client has owed £6,000 for 4 months and now says they will pay £500 per month, and another owes £56,000 but refuses to pay any sooner than 120 days. So unless, like us, you have a high cash flow and can stand these debts, you will just go to the wall, as many have.”

Catering Design Group MD Phil Howard detailed his company’s payment terms have remained almost unchanged since the beginning of the business.

Catering Design Group’s general policy is to request a 25% deposit, followed by stage payments in two or three instalments.

MD Phil Howard detailed: “Our payment terms have remained relatively unchanged since the outset of the business. We place great emphasis on building close relationships with our contractors, suppliers and manufacturers so trust is important. Many of our suppliers are small, independent firms so we are mindful that cash flow is vital to them. Consequently, we operate a fair and consistent policy to ensure that the agreed payment terms are met promptly.”

Underlining that the scale and length of a project will impact how the distributor assesses the risk involved, he said: “Financing a project over a long period of time can have an impact on cash flow. How well we know the organisation, its reputation within the marketplace and if we have worked with the company before will all inform our decision and judge the risk factor involved.

“For new partnerships, we always run a credit check and insist on pro-forma invoicing to minimise any risk.”

At Lakes Catering Maintenance, its general rule is 25% upfront on projects, though this increases to 50% for small schemes. Where bespoke items are included then the distributor would ask for a 50% deposit. “This guarantees the customer is fully committed to going ahead and the equipment can be fabricated without cancellation,” said manager, Sal Martin. “We can also offer an early settlement discount which can help lower the price for the customer and improves cash flow for us.”

While the firm’s payment terms state 21 days, it accepts payment at the end of the following month, as most others do.

Martin commented: “We use a credit reference agency for new accounts. However it still doesn’t guarantee you are going to get paid. We generally offer regular customers the option to pay over a couple of months for one-off equipment items after receiving a deposit. This helps achieve the sale and the customer can relax a little without having to face large bills.

“It can also sway the sale our way as ‘web-shops’ are usually a ‘pay in full at the checkout’ arrangement. If the equipment then arrives damaged or is faulty/not working on arrival this can add to the customer’s frustration trying to obtain exchange units or repairs long after having already dished out the cash for it.”

CNG Foodservice Equipment is another kitchen design house which typically raises a deposit invoice for a minimum of 25% of the project value, plus any deposits for specialist or bespoke items such as cooking suites. Each section of works is then invoiced as the project progresses.

MD Clive Groom recalled: “A few years ago we altered our terms and conditions to 90% before we deliver to site; this was mainly for new or ‘tricky’ clients. We would set more stringent terms for new clients, whereas when we have a long and positive trading agreement we will vary this level.”

However, CNG will take into account extenuating circumstances, as Groom detailed: “About 5 years ago, a client who was moving back to the UK advised that the sale of their home in France, which was part funding their new restaurant, had fallen through. We agreed special terms that allowed them to open, albeit with a couple of high value items staying in our warehouse until the account was brought up to date. Five years on, their business is going well and we eat there regularly – indeed we are firm friends.”

Another dealer which wished to remain anonymous is also in the 25% upfront camp. This firm then requests 65% on delivery and the final 10% 30 days after completion – though it will allow exceptions for clients with a reasonable track record.

One distributor believes a sale is not a sale until it is paid for.

Lower value orders for this company tend not to attract staged payments, but it does extend credit for clients such as government bodies and independent schools, but this is strictly 30 days.

A spokesperson for the firm revealed: “We are a relatively small business and place a very high priority on payment of suppliers strictly within their payment terms, to ensure we secure the best levels of trade discount.

“Every invoice we raise irrespective of value is important so we seek to avoid risk wherever we can. We see the dealer/manufacturer relationship as being a valuable partnership and we need to adhere to our agreements with our suppliers to maintain trust. Cashflow is everything as margins are squeezed.”

Elsewhere, Vision Commercial Kitchens’ MD Jack Sharkey said of his company’s policy: “We review the credit status of the client to enable us to understand the exposure on every project we undertake, so we are not exposing the business to any undue risk

“If they are a risky end user then we minimise our exposure to no more than 10% of the project/sales value at any one time.”

Another large player, Gratte Brothers Catering Equipment, agrees payment terms on a case by case basis. Sales director Paul Gilhooly explained that factors taken into account include the trading relationship with existing clients, the credit rating for new clients, plus the levels of bespoke items within the project, the deposit payments the firm will have to make to manufacturers and its exposure if the project is cancelled. Payments are normally set in three stages: with the order, prior to install and following install.

Gilhooly remarked: “We are asking for payment terms on more projects, especially when dealing with end users.

“We really try to work out the best solution for our clients and ourselves. We are interested in building long-term relationships with clients but we also need to minimise our exposure to bad debts.”

One dealer who did not wish to be named told Catering Insight: “We believe a ‘sale is not a sale until it is paid for’. On that basis, payment terms form part of our sales process, agreeing payment terms on larger projects that are satisfactory to both parties.

“We will always secure an initial deposit; this confirms commitment from the client to progress and covers some of our time and resources to progress manufacture of bespoke items. Further staged payments are then agreed e.g. ‘equipment on site’, stage completion and then practical completion.

“A final sum to be paid after completion of any snagging is also agreed so a large final balance is not held back over a minor snagging issue. In terms of equipment supply and service we offer credit terms to clients with formal purchasing systems e.g. purchase order numbers and clients we have had a long/good trading relationship with.

“New customers or those with a history of previously not paying on time are offered our services on a pro-forma basis. This has had a great effect on reducing the number of overdue invoices in our system.”

The pro-forma payment is a recent introduction for one-off call outs and repairs over the last 3 years, unless the client is well known or has a formal purchase order system in place. “This has reduced our number of outstanding invoices that were generally for small amounts, particularly with small companies/sole traders,” said the company spokesperson. “This has been received positively by customers and we haven’t seen any drop in business because of it.”

Kent Catering Service also makes a payment term judgement call, taking into account numerous factors. MD Tony Irwin said: “We are able to spread over various agreed instalment phases up to final payment on completion. Historically all our customers are taken on their own merit, but due to squeezed margins we try never to look at too many risks.”

Over at Equipt to Cook, it doesn’t stagger payments too often. MD Yvonne Martin detailed: “We do not carry out too many large projects so we usually send one invoice at the end of the project, if we know the client or for respected hotel clients. We are a small team and cannot take on very large projects.

“We try and invoice the same month as suppliers’ invoice date if possible. While usually for independent operators we would obtain upfront payments and not order until the payment is received.”

But no matter what a distributor’s payment policy is, one thing is for sure: terms are more likely to tighten than lengthen, especially when the market is facing so much uncertainty.

To read the first part of the payment terms special feature, click here:

Dealers voice supply chain payment opinions

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Clare Nicholls

The author Clare Nicholls

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