Kellogg’s warns Irish Government EU late payments proposal could hurt food trade

Dave Lawlor, the company’s regional president for Europe, wrote last month to Minister of State in the Department of Enterprise, Dara Calleary, saying that a one-size-fits-all 30-day rule on payments could endanger the business environment.

He specifically warned that it “would reduce the competitiveness of food manufacturers in the EU relative to those outside” the bloc, which includes Britain.

The European Commission is proposing to turn a directive on late payment, adopted in 2011, into a regulation. It says that every year across Europe, thousands of small and medium-sized enterprises go bankrupt waiting for invoices to be paid. This leads to job losses, stifled entrepreneurship and administrative burdens.

The commission says studies have shown that the current EU legal framework on combatting late payments is insufficient. This is because of a lack of preventative measures and effective enforcement, as well as a shortage of redress mechanisms that small firms can use.

The current directive lays down a payment term of 30 days in business-to-business transactions, but says this can be extended to 60 if it’s not “grossly unfair to the creditor”. The ambiguity of this term has led to payment terms of 120 days or more being imposed on smaller creditors, the commission says.

The new regulation would introduce a single maximum payment term of 30 days for all commercial transactions, including between public authorities and businesses, all across the EU.

In his letter to the minister, Mr Lawlor points out that Kellanova has its European headquarters in Dublin, and is a leader in global snacking and European cereals, with brands such as Pringles, Kellogg’s Cornflakes, and Special K.

He says Kellanova believes in the importance of a culture of timely payments, but offers a “concrete example” of the impact a 30-day rule would have on the business “as an illustration of our concerns with the proposal”.

Kellanova, as a manufacturer of food, has a range of payment relationships with suppliers, including global commodity traders that have a larger turnover, Mr Lawlor said. Each contract has payment terms that take account of factors such as shipping delays and weather problems.

“Consequently, some raw materials may be purchased up to a year before they are used in production,” the Kellanova executive said.

“Once we use the raw materials to produce packaged food products, [these] have a long shelf-life and can be stored in a warehouse for as long as six months or more before they are sold to a retailer.

“Therefore, the extended time gap that food manufacturers like us often encounter between purchasing raw materials for production from suppliers and receiving payment from retailers for the sale of the finished product can span from four to 10 months or more.”

Mr Lawlor said this forces manufacturers to carry debt, and the payment terms set between large businesses in his sector reflect the varied supply-chain dynamics.

“Imposing a one-size-fits-all approach that reduces payment terms to 30 days in all circumstances would significantly increase this debt burden, which would reduce the competitiveness of food manufacturers in the EU relative to those outside the EU,” he concluded.

As well as the letter to the minister, Kellanova forwarded a submission by business representative group Ibec, which argued there is no business case to turn the existing Late Payment Directive into an EU Regulation.

Ibec claimed: “Statements that 25pc of SME insolvencies are due to late payments do not reflect the evidence from Ireland and a number of other members states.

"Accepted payment terms vary across the economy, and between sectors. A one-size fits-all approach is likely to be counter-productive and would overlook the nuances of a given industry sector and the inter-dependent relationships within it.”