Friday 5 December 2014

Premier Foods 'Invest or else' request from suppliers

According to the BBC, Premier Foods have allegedly been asking their suppliers for payments to continue doing business with the firm.

NAMs, long accustomed to fielding such ‘requests’ from major customers, might be forgiven for thinking that Premier Foods had diversified into retailing…

Essentially, when a company enters a supply arrangement with a customer, they obviously negotiate a working arrangement that should be summarised in a supply agreement – a legal completion of the agreement process where UK suppliers still lag behind their continental cousins.

However, commercially speaking, a contract is an instrument that ‘can’ rather than should be used, because in practice, resorting to the law is an end-of-relationship process rather than a  basis for a mutually productive partnership…

The agreement to supply needs to include the total package – all terms and conditions, binding both parties. This up-front agreement can contain some ‘gun-to-head’ elements in that the customer, exploiting their size, can make it a condition that they will pay in 90 days for a product delivered daily.

Strictly speaking, this condition can be in compliance with current ‘pay-on-time’ legislation, but ignores the fact that the 90 days can be unreasonable where the customer experiences the value of the product within days of receipt on a rapid rotation line, and credit period was always meant to simply cover the gap between delivery and resale of a product.

In other words, the customer observes the letter of the law, as worded, and ignores the real issue, the need for payment within an appropriate-for-purpose time frame – the law patently needs modifying to make this more explicit.

The same holds for a retro-demand for additional cash, for whatever purpose. However, if the request applies to future dealing, then that becomes a basis for negotiation, however unfair the balance of power…

When a customer steps outside an agreement and imposes a new condition retrospectively, the supplier has a genuine grievance, and a basis for action, if a comprehensive written contract exists. It may still be unrealistic to expect a small supplier to take on a big customer. In fact the little guy may even  'knuckle under', with wise customers keeping in mind the possibility of the ‘don’t get mad, get even’ condition being invoked….

The real issue is the damage being done to the customer’s reputation for fair dealing, both with other suppliers, the legislature and current employees, and especially with the general public - the ultimate consumers - in times where abuse by big business is becoming an increasingly sensitive topic….
Additional details in The Telegraph here
Update in The Independent here

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