Payback time: the cash-flow crisis in spirits supply chains
As an overdue alcohol bill in India causes chaos for suppliers, how much of a wider issue are payment delays in the industry?
*This feature was first published in the March issue of The Spirits Business magazine.
In India, a state owes alcohol suppliers upwards of ₹4,000 crore (US$500 million) in delayed payments. The state in question, Telangana, in the country’s south, operates a monopoly through Telangana State Beverages Corporation. This could be construed as a situation in which one player has too much power in one place, but it’s also a high-stakes case of delayed payments weighing down on some of the world’s biggest spirits companies, including Diageo, Brown-Forman and Pernod Ricard.
Sanjit Padhi, CEO of the International Spirits & Wines Association of India (ISWAI), says the situation has “obviously strained” companies and their ability to supply. “Some of the strains are very evident in the ecosystem, and I can’t name people, but there are some people who are obviously in trouble,” he says. “We just hope that the government recognises how crucial the revenue is that they collect from the alco-bev sector, and in this hour of need, they should be in a position to start producing the outstanding debt.”
Tipping point
Alcohol excise is the third-largest contributor to Telangana’s revenue stream. Padhi stresses that the situation must come to a head soon or else there’ll be a tipping point: “It’s not just spirits, it’s beer and wine too; the whole industry,” he says as the issue threatens to spill into the ISWAI’s business elsewhere in India.
While the rules might play differently in India, the situation can serve as a warning to the industry, especially when the global spirits sales market is in decline. Nick Gillett, managing director of UK-based Mangrove Global, notes while the market in India works differently, it’s “an extreme example of what happens every day of the week here [in the UK]”, and the impact of people paying late shouldn’t be underestimated.
He says the UK’s high duty fees make payment delays even more of a burden, especially if the business is supplying big customers with duty paid. “They may be on-trade wholesalers or they could be grocers. When you’re supplying people on the bond, OK, the sums of money aren’t so bad, but it’s still there,” he says. Gillett suggests Mangrove could conceivably be paying £1 million (US$1.35m) in duty a month, so if payments are delayed by an extra month, “that’s fundamentally a big hole”. While the practice has become better, he observes that it’s often the biggest customers who are the worst payers. Looking at it from an extreme perspective, he says: “If you have people who don’t pay you for a period of time that can be enough to take smaller businesses under – and you shouldn’t be relying on companies smaller than you to finance your business.”
Missed payments are more common in January and February “because you’ve got people chasing money all the way up the supply chain”, he says. He adds that there are genuine reasons why payments can be missed, and those can be worked around, but the big worry is “clients who are due to pay on 45 days or 60 days, and then on day 59 come back and say ‘oh, actually, we’ve got a query with the invoice’, then for some of them, that process starts again”. Mangrove is proactive in stopping this bad practice, it chases clients to see if there are issues, and also employs full-time credit control. “If there’s a query on one line out of a multi-line invoice, or one invoice out of the whole batch, it’s to say freeze that one while we investigate, so you get the bulk of your money,” Gillett says. However, if the company gets that wrong, you get scenarios where businesses can’t pay their own staff or suppliers, and you “end up with this knock-on effect”, Gillett says, “and because of the amounts of duty that you’re collecting where duty has to be paid instantly, 60 days in advance.” Gillett has a duty-deferment account, but says he’s still “paying way in advance of me being paid”. He adds: “It is something that causes quite a lot of disruption. It has caused a few headaches in the past. Ironically, the discounters tend to be the best at paying, and one or two of the grocers have a small-supplier programme where they’ll pay you in seven or 14 days because they realise how important that is to small suppliers.”
‘Worst part of the job’
Eoin Bara, co-founder of digital distribution platform Tipple, was also behind a gin brand called Mór Irish, for which he claims getting paid was “always the worst part of the job”. “You’d be on 30-60 days and then you’d still be chasing after that, whether it was distributors, bars, or whatever,” he says. With Tipple, Bara explains that the company built a B2B (business-to-business) platform that does two things: “When you sell to a retailer, or a bar, we automatically insure the debt, we credit-check them and we find out if they’re worthy of credit. If they are, we offer them credit, if not, they’re not able to check out with credit, but if you don’t pay in 90 days, we automatically pay them out.”
Bara notes that the delayed payment situation is something he’s seen in the drinks industry quite a bit, and there are also a lot of risk and cash flow worries around hospitality. “I’ve had situations where we’ve had distributors in Germany who would have taken three or four orders then on the fifth order, just stiffed us because as soon as you gave them credit, they were just gone,” he says. “It is something that happens, but doesn’t get talked about a lot. When you’re a small company, you don’t really have the ability to go do credit insurance because you have to insure your entire book – we’ve solved that from the ground up, from our own platform point of view.”
Bara says some markets are worse than others, with the UK timeline in getting paid being a little slower, but “there’s no canary in the coal mine that’s going ‘we’re in trouble’”, he adds. Missed payments are increasingly happening, but what Bara sees really causing problems is the new business rates in the UK. “The government did a reevaluation of council rates and some people’s have tripled, which is always a pain. Duty and council rates are the two things that are really putting pressure on the industry,” he warns.
In the US, meanwhile, Jake Hegeman, senior vice-president, legal and regulatory and general counsel at the Wine and Spirits Wholesalers of America (WSWA), says Telangana’s state-monopoly concept exists in 17 US states to a degree – for instance, Pennsylvania, as a significant market – but there are guards in place to prevent a Telangana-style problem. “We have a two-layered regulatory model in the US, and there’s a federal foundational system that regulates and licenses importers, manufacturers and distributors,” he says. “The federal government has a base layer of regulation, and nestled within that are what we call trade-practice laws and regulations that govern the conduct of those permitted businesses, in terms of how they work with each other and how they work with retailers in the US.”
One of these provisions deals with the amount of credit a business can expect. Hegeman notes there is a federal law that limits the provision of credit. “If I sell you a product today, under federal law at least, you have up to 30 days to pay for that product, so there’s a degree of credit allowed, but not infinite credit, and that’s always been an important provision in limiting what you see happen in the India example,” he says. “There are some controls in place in the US that are intended to prevent indefinite purchasing and indebtedness like we’ve seen in the Telangana example.”
Another provision Hegeman says is a prohibition on consignment sales. “In the US, and in the case of a distributor, you’re not allowed to give a case of wine to a retailer and say, ‘hey, pay me when you sell that’,” he says. “That’s prohibited both at the federal and state levels, so that concept is also used to limit extended payment terms where, theoretically, you can say, ‘we’re going to pay for this’, but they’re basically taking that 30-day limit and saying ‘well, there’s potential for abuse of that’. Consignment limitations further illustrate that the intent of our system is to not have product/unpaid product residing with the presumable purchaser.”
One of the fastest-growing spirits brands in the US is ready-to-drink (RTD) maker Surfside, which has national distribution and more than 200 distributors. Co-founder Clement Pappas believes the system is regulated to the point where “you can’t get into that kind of problem”, referring to Telangana. “Every state is slightly differently regulated, but the distributors have an outsized influence in the state legislatures, and they’ve got these rules written every-which-way from Sunday to make sure that they are protected on everything,” he says. “Most of them have franchise laws where you can never fire your distributor.”
Pappas, however, also recognises that it’s a “wild time right now” in the US distribution tier. The second-largest spirits distributor in the country, Republic National Distributing Company, has had a challenging time recently.
Pappas feels that as beer is growing and full-strength spirits are not, all growth in spirits is coming from RTDs, which act in the same way as beer. “It’s all converging [distribution] and the RTD category in particular is forcing some of that to happen because it’s crossing over. Full-proof spirits are looking at spirits distributors and saying, ‘well, these spirits guys are falling apart, I need to jump to the stronger horse’. The dust is not nearly settled on this, and it’s going to be a big year of consolidation, restructuring, and brands jumping. It’s definitely a tumultuous time in that middle tier.”
If there is more protection afforded in the US for a fair marketplace, Hegeman says the WSWA “tends to think so”, pointing to the SKU proliferation of spirits there, which “is really unmatched”. “When you walk into a liquor store in New York or Dallas, or a state-run store in, say, Virginia, where I live, the array within any one category is pretty incredible.” He also notes the roles control states have in wholesale and retail, which he believes are helpful for small manufacturers. “You could be a tiny distiller and if the state decides to take a chance on you, all of a sudden you’ve gained statewide distribution, and are catapulted before potentially millions of consumers. That can be really hard to do, so it’s an interesting system in that respect.”
Jeff Diego, founder and CEO of Helmsman Imports, an importing company that helps booze brands enter and expand in the US, finds the structure of the US three-tier system means the importers and brands tend to act as a “bank” for the whole system. The system starts at tier three, the retailers, who pay the distributors and wholesalers at tier two, who then pay the importers, who pay the brands and producers at tier one.
When retailers pay distributors late, it causes a domino effect, says Diego, meaning independent brands suffer: “Large distributors often have 60- to 90-day payment cycles with importers, and for a small, independent brand, having US$50,000 or US$100,000 worth of inventory ‘stagnant’ in a distributor’s warehouse – while waiting months for a cheque – is a massive hurdle,” he says. “These brands are essentially financing the distributor’s operations with their own limited capital.”
Diego also looks at New York and a law in the state – the State Liquor Authority (SLA) Credit Law – that can complicate things for small brands, especially in the “January slump”. “If a retailer misses their 30-day payment window with any one distributor, they are placed on the Delinquency List, and once on this blacklist, the retailer is legally barred from buying on credit from any wholesaler in the state, and they must pay cash on delivery for everything,” he explains.
“We see a massive spike of this in January as retailers recover from the holiday rush. When a retailer is in cash-survival mode, they stop taking risks on independent craft brands and only spend their remaining cash on the ‘must-have’ global-commodity brands. The small brand gets squeezed out of the order precisely when the distributor’s payments to the importer are already lagging,” he says.
In the UK, Gillett feels legislation such as the Groceries Supply Code of Practice has made “everyone better” at paying on time, but the ones that still struggle, “are those that have offshored payments and accounts teams” and “the biggest difficulty is getting to speak to somebody”.
Looking at Mangrove’s growing stages when it first won business, Gillett says the company “suddenly had to find £2m a week just to pay duty and stuff”.
Delayed payment is “a real problem”, he says, and “it will be for as long as duty remains so high and the onus is on us to pay it in advance of getting paid from our customers”, but it is “one of numerous factors, rather than the biggest factor here, for now”.
As a distributor, how do you handle payment terms?
Francisco Leitão – trade marketing manager, Casa Redondo
“At Casa Redondo, we approach payment terms through clear governance, strong partnerships, and constant financial visibility across markets. Delays affect the entire value chain, so transparency, realistic agreements, and early alignment with distributors are essential. Ultimately, resilience comes from trust, accountability, and long-term collaboration.”
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