The food industry is characterized by a short lag time between incurring the cost of goods and the sale of those goods.
Long credit terms delay the inevitable, creates earnings complacency and reinforces inefficiencies.
Shorter credit terms should be the goal of a lean and efficient food operator - buy what you need, keep it fresh, minimize required storage space and waste, and convert it into sales ASAP!
How do you achieve it?
First, get on top of any outstanding supplier debt. Order your outstanding debt from smallest to largest and pay one debt off at a time starting with the smaller amounts. This approach gives you confidence and generates momentum.
Once you’re up-to-date with your supplier debt, look to shorten your credit terms with them.
How short? For a café/restaurant, you should be able to settle all outstanding invoices every two weeks or so. If not, your costs are too high relative to your revenue or you’re carrying too much stock.
