Selling beer in such a crowded marketplace is hard enough. Actually getting paid for it can be even harder.
Yesterday I tweeted out that I was taking a day off from brewing duties to chase up unpaid invoices, and a lot of other breweries got in touch privately to say they were having the same issues – sometimes with the same pubs, we discovered – and that it was a constant problem in this and many other industries.
I fully admit that sometimes I forget to pay an invoice, genuinely forget that is, not, ‘“oh whoops you’ve noticed I’ve not paid; I’ll pay it this week” and then wait to be chased again’ forget. When you’re a small business doing everything yourself the focus often isn’t on the paperwork. I’m sorry about that.
But the latter type of forget is far too common. And it needs to change.
How it works for a brewery is that we generally pay for all our ingredients up front. When I order in malt I use my bank card and pay for it over the phone. When I order in hops I do the same. As with yeast. My rent is paid in advance, and my utilities are billed at the end of the month. Beer Duty is recorded by the middle of the following month for sales and must be paid later that month.
A cask of pale ale costs us about £60 to make, including all overheads, of which approximately £45 we’ve already paid out money for on ingredients, Duty, VAT and wages. Which means that for us as a brewery to make beer, it ties up £45 in cashflow for every cask until it’s sold and paid for. Over the course of a month that can add up to about £6,500 that we’ve paid out to produce beer. And if a brewery doesn’t get paid on time, that’s a very quick way to drive it out of business.
A lot of people opening up breweries, and indeed bars, aren’t business focussed. We’re in it for the love of beer, looking to turn our passions into our livelihoods. But we need to learn quickly about payment terms. I state on all my invoices that payment is due upon delivery. I have in the past allowed 30-day terms for some places, yet still found myself chasing them for payment at 60 days. I’ve dealt with wholesalers who paid on the last working day of the following month, meaning cash could be tied up with them for two months, and I’d then occasionally still have to chase payment, sometimes meaning that the beer they’d been taking for a month would take three months to be paid for, a quarter of a year.
If payment terms are set out and agreed from the beginning and adhered to, then they can be worked around. But when cash is tied up for 30 days, and not collected for 90, that can kill a small business.
And it seems that a lot of pubs and wholesalers don’t stick to the agreed payment terms. Yesterday’s oldest invoice for me was 4 months overdue. For one brewery I spoke with it was 6, for another it was a year. My largest overdue invoice yesterday was for just shy of £500, for another brewery it was over £4,000.
I dread to think how much money is owed to breweries by pubs and wholesalers who don’t pay up on time, and I further dread to think how many of these businesses would fold if they had to settle all their accounts overnight.
It’s not just traditional bars or tied houses, or even Big Beer trying to strangle the small guy out of the market, but also pubs and bars that we’d consider to be champions of craft beer putting those very brewers they purport to champion at very real risk of bankruptcy. But it’s okay, another brewery will be along in a minute willing to take the risk as to whether they’ll get paid or not.
What can we do though? This obviously isn’t good for a stable, sustainable industry that can focus on quality, innovation and growth.
We can define payment terms up front, and we can enforce them with late payment fines, and eventually small claims court.
The government has a handy to guide to dealing with late payments here: https://www.gov.uk/late-commercial-payments-interest-debt-recovery including how to apply fines and recover costs.
And guidance on how to take people to court here: https://www.gov.uk/make-court-claim-for-money
This may seem like a shitty thing to do, stamping on the good relationships we’ve been building with pubs, but once you add on the cost of time to chase up payment, the already slim margins we make suddenly disappear, and we end up losing money selling into places.
So I’m going to be changing my invoices, and I’m going to be keeping a record of regular late payers (mistakes happen, fully aware), and I’m going to be enforcing late payment fines.
It may mean I lose a few customers, but I believe that any customer who cares about beer, and isn’t just on the bandwagon to fleece people, will be fine with these changes.
And if more and more – hopefully all – breweries took this up, cashflow wouldn’t be so much of an industry problem, we’d get paid, our staff would get paid, and our suppliers would get paid. And bars wouldn’t be able to fold owing hundreds of thousands of pounds to already struggling breweries.
TL/DR: Pay your bills, you wouldn’t like it if I started a tab in your bar, then at the end of the night left it unpaid with promises to come back and settle up next week.